The Following Problem Requires Present Value Information

question 44

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 $700,000 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:

Value Chain

The series of steps that a company takes to create or add value to a product, from raw materials to finished product.

Financial Planning Business

A service-oriented business that provides personalized financial advice, including investment management, income planning, and tax strategies, to help clients achieve their financial goals.

Professional Labour Costs

Expenses associated with hiring skilled professionals to perform specific services or tasks.

Production Environment

The physical and organizational setting where manufacturing or production takes place, involving machinery, labor, and workflows.