A young software engineer is selling the rights to a new video game he has developed. Two companies have offered him contracts. The first contract offers $10,000 at the end of each year for the next five years, and then $20,000 per year for the following 10 years. The second offers 10 payments, starting with $10,000 at the end of the first year,$13,000 at the end of the second, and so forth, increasing by $3,000 each year(i.e.the tenth payment will be $10,000+(9×$3,000). Assume the engineer uses an i of 9%. Which contract should he choose? First Company or Second Company.

A young software engineer is selling the rights to a new video game he has developed. Two companies have offered him contracts. The first contract offers $10,000 at the end of each year for the next five years, and then $20,000 per year for the following 10 years. The second offers 10 payments, starting with $10,000 at the end of the first year,$13,000 at the end of the second, and so forth, increasing by $3,000 each year(i.e.the tenth payment will be $10,000+(9×$3,000). Assume the engineer uses an i of 9%. Which contract should he choose? First Company or Second Company.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter15A: Auction Design And Information Economics

Section: Chapter Questions

Problem 5E

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