The Following Problem Requires Some of the Following Present Value

question 44

Essay

The following problem requires some of the following present value information:
$\begin{array} { | l | l| } \hline \text { PV af an arthary annuity for } 20 \text { periods at } 12 \% & 7.46944 \\\hline \text { PV af an ardinary annuty for } 19 \text { periods at } 12 \% & 8.36497 .36578 \\\hline \text { PV af an arthary annuty for } 18 \text { periods at } 10 \% 12 \% & 8.20147 .24967 \\\hline \text { PV af } 1 \text { for } 20 \text { periods at } 10 \% 12 \% & 0.10367\\\hline\end{array}$
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:

Equity

The amount of ownership an investor has in an asset or company, typically represented by shares.

Divisions

Subsets within a company that focus on specific operational areas or markets.

Market Portfolio

A theoretical bundle of all possible investments, with each asset weighted by its market capitalization, representing the entire stock market.

Expected Return

The anticipated profit or loss from an investment over a certain period, typically represented as a percentage.