Npvsimesinnovations Inc Is Negotiating To Purchase Exclusive Rights To Manufactu

NPVSimesInnovations, Inc., is negotiating to purchase exclusive rights to manufacture and market asolar-powered toy car. Thecar’s inventor has offered Simes the choice of either a one-time payment of $1,800,000today or a series of 66year-end payments of $390,000.

a.If Simes has a cost of capital of 13%,which form of payment should itchoose?

b.What yearly payment would make the two offers identical in value at a cost of capital of 13%?

c.What would be your answer to part a of this problem if the yearly payments were made at the beginning of eachyear?

d.The after-tax cash inflows associated with this purchase are projected to amount to $253,500per year for 16 years. Will this factor change the firm’s decision about how to fund the initital investment?

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