Coming Up Roses has grown into a very successful business and you have just received an offer from someone to purchase the business from you for $1.2 million. The potential buyer has offered you $400,000 at the time of sale, $600,000 at the end of the growing season, in 6 months, and the balance, $200,000 in 1.5 years from now. What is the present value of this offer if you could invest at 6% compounding monthly?
Coming Up Roses has grown into a very successful business and you have just received an offer from someone to purchase the business from you for $1.2 million. The potential buyer has offered you $400,000 at the time of sale, $600,000 at the end of the growing season, in 6 months, and the balance, $200,000 in 1.5 years from now. What is the present value of this offer if you could invest at 6% compounding monthly?
Chapter13: Other Financing Alternatives
Section: Chapter Questions
Problem 1bM
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Coming Up Roses has grown into a very successful business and you have just received an offer from someone to purchase the business from you for $1.2 million. The potential buyer has offered you $400,000 at the time of sale, $600,000 at the end of the growing season, in 6 months, and the balance, $200,000 in 1.5 years from now.
- What is the
present value of this offer if you could invest at 6% compounding monthly?
Expert Solution
Step 1
Present Value of the cash flows can be calculated using the interest rate of 6% which is compounded monthly (6%/12 = 0.5%).
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