Homework: Chapter 5 Homework Score: 067 of 2 pts & P5-32 (similar to) 8 of 10 (1
ID: 2341811 • Letter: H
Question
Homework: Chapter 5 Homework Score: 067 of 2 pts & P5-32 (similar to) 8 of 10 (10 complete) HW Score: 90%, 18 of E Question Help Value of a mixed stream Harte Systems, Inc, a maker of electronic survillance equipment, is considering selling to a well-known hardware chain the rights to market its home security system. The proposed deai calis for the hardware chain to pay Harte $34,000 and $21,000 at the end of years 1 and 2 and to make annual year end payments of $10,000 in years 3 through 9. A final payment to Harte of $25.000 would be due at the end of year 10 a. Select the time line that represents the cash flows involved in the offer b. If Harte applies a required rate of return of 9% to them, what is the present value of this senes of payments? C. A second company has offered Harte an immediate one-time payment of $90,000 for the rights to market the home security system Which offer should Harte accept? a. Which of the following time lines represents the cash flows involved in the offer? (Select the best answer below) 10 $34000-$21,000-$10,000 -$10,000-$25,000 10 S34,000 $21,000 $10,000 $10,000 $25,000 10 $25,000 $10,000 $21,000 $21,000 $34,000 D0 10 Enter your answer in the answer box and then click Check Answer.Explanation / Answer
Answer 1
Option B is correct.
Cash inflow represented with positive sign whereas cash outflow represented with Minus sign.
Year
Cash inflow
0
1
34000
2
21000
3
10000
4
10000
5
10000
6
10000
7
10000
8
10000
9
10000
10
25000
Answer 2
Year
Cash inflow
Discounting factor @ 9%
Present value (cash inflow * discounting factor)
1
34000
0.917431
31192.66
2
21000
0.84168
17675.28
3
10000
0.772183
7721.83
4
10000
0.708425
7084.25
5
10000
0.649931
6499.31
6
10000
0.596267
5962.67
7
10000
0.547034
5470.34
8
10000
0.501866
5018.66
9
10000
0.460428
4604.28
10
25000
0.422411
10560.27
Present value of cash inflow
101789.57
Answer 3
Present value of cash inflow
101789.57
Second company offered one time
900000
Offer should not be accepted because offer amount is less than present value of cash inflow.
Rejected
Answer 1
Option B is correct.
Cash inflow represented with positive sign whereas cash outflow represented with Minus sign.
Year
Cash inflow
0
1
34000
2
21000
3
10000
4
10000
5
10000
6
10000
7
10000
8
10000
9
10000
10
25000
Answer 2
Year
Cash inflow
Discounting factor @ 9%
Present value (cash inflow * discounting factor)
1
34000
0.917431
31192.66
2
21000
0.84168
17675.28
3
10000
0.772183
7721.83
4
10000
0.708425
7084.25
5
10000
0.649931
6499.31
6
10000
0.596267
5962.67
7
10000
0.547034
5470.34
8
10000
0.501866
5018.66
9
10000
0.460428
4604.28
10
25000
0.422411
10560.27
Present value of cash inflow
101789.57
Answer 3
Present value of cash inflow
101789.57
Second company offered one time
900000
Offer should not be accepted because offer amount is less than present value of cash inflow.
Rejected
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