The Following Problem Requires Present Value Information

question 65

Essay

The following problem requires present value information:
Biotech sold a patent on a new blood analyzer to Pharma. The sales agreement which was signed on January 1, 2009 requires Pharma to pay Biotech $1 million immediately. In addition, Pharma is required to pay $600,000 each December 31 for 20 years starting with December 31, 2009. Pharma and Biotech judge that a 10 percent is an appropriate interest rate for this arrangement.
a. Compute the present value of the receivable on Biotech’s books on January 1, 2009 immediately after receiving the $1 million down payment.
b. Compute the present value of the receivable on Biotech’s books on December 31, 2009.
c. Compute the present value of the receivable on Biotech’s books on December 31, 2010.

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Definitions:

Group Disadvantage

The adverse conditions or outcomes faced by a particular group due to social, economic, or political factors, often leading to inequality.

Altruistic Punishment

A behavior in which an individual incurs a cost to punish another for a perceived social norm violation, often to uphold societal rules or benefits.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be used by everyone and one person's use doesn't reduce availability to others.

Moral Judgments

Evaluations or decisions based on the discernment of right and wrong, often influenced by an individual’s ethical beliefs and principles.