The Following Problem Requires Some of the Following Present Value

question 25

Essay

The following problem requires some of the following present value information:
$$\begin{array} { | l | l | } \hline \text { pV af an ardinary annuity for } 20 \text { periods at } 12 \% & 7.46944 \\\hline \text { pV af an ordinary annuity for } 19 \text { periods at } 12 \% & 8.36497 .36578 \\\hline \text { pV af an ordinary annuty for } 18 \text { periods at } 10 \% 12 \% & 8.20147 .24967 \\\hline \text { pV of } 1 \text { for } 20 \text { periods at } 10 \% 12 \% & 0.10367\end{array}$$
Bioco sold a patent on a new laser process to Agent Co.The sales agreement which was signed on January 1,2011 requires Agent Co.to pay Bioco $2 million immediately.In addition,Agent is required to pay 500,000 each December 31 for 20 years starting with December 31,2011.Agent and Bioco estimate that 12 percent is an appropriate interest rate for this arrangement.
Required: a.Compute the present value of the receivable on Bioco's books on January 1,2011 immediately after receiving the $1 million down payment.
b.Compute the present value of the receivable on Biotech's books on December 31,2011.
c.Compute the present value of the receivable on Biotech's books on December 31,2012.

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Definitions:

Smaller Sample

A subset of a population used in research or analysis that is less in number compared to the whole.

Larger Sample

In research, a bigger group of subjects selected for study, which can provide more reliable and generalizable results.

Reliable

Capable of being trusted or depended on; consistently good in quality or performance.

Metaphor

A descriptive type of analogy, frequently found in literature.