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:

Sincere Performance

An act or behavior that is carried out with genuine intention and authenticity, without the intention to deceive.

Cynical Performance

An approach or behavior in a performance that is marked by a skepticism of motives or virtues of others, often for personal gain or protection.

Self-Compassion

Being kind to ourselves when we suffer, fail, or feel inadequate, recognizing that imperfection is part of the human condition, and accepting rather than denying negative feelings about ourselves.

Negative Feelings

Emotional states that are unpleasant or disturbing to the individual, such as sadness, anger, or fear.