You have successfully started and operated a company for the past 10 years. You

Question

You have successfully started and operated a company for the past 10 years. You have decided that it is time to sell your company and spend time on the beaches of Hawaii. A potential buyer is interested in your company, but he does not have the necessary capital to pay you a lump sum. Instead, he has offered $700,000 today and annuity payments for the balance. The first payment will be for $180,000 in three months. The payments will increase at 2.3 percent per quarter and a total of 30 quarterly payments will be made.

If you require an EAR of 10 percent, how much are you being offered for your company

You have successfully started and operated a company for the past 10 years. You have decided that it is time to sell your company and spend time on the beaches of Hawaii. A potential buyer is interested in your company, but he does not have the necessary capital to pay you a lump sum. Instead, he has offered $700,000 today and annuity payments for the balance. The first payment will be for $180,000 in three months. The payments will increase at 2.3 percent per quarter and a total of 30 quarterly payments will be made.

Explanation / Answer

Quarterly rate required = 1.10^1/4 -1 = 2.4114%

amount that is being offered = 700,000 + 180,000/(0.024114-0.023) * (1 - (1.023/1.024114)^30)

amount being offered = 5,890,521.80

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.