Executives at Microsoft are interested to get into the drone delivery business.They decide to acquire "FLY" corporation."FLY" has been operating a drone delivery service for 4 years now and they are the most successful operators in the market. Microsoft executives offer "FLY" two purchase options: the first option is one $40 million lump sum payment.the second option is paying five annual payments of $10 million over the next five years.a)If the annual interest rate is 7% ,find the present value of both options?b) Evaluate the net present values of both option and identify which option is more cost effective for Microsoft ?

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Asked Oct 17, 2019
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Executives at Microsoft are interested to get into the drone delivery business.They decide to acquire "FLY" corporation."FLY" has been operating a drone delivery service for 4 years now and they are the most successful operators in the market. Microsoft executives offer "FLY" two purchase options: the first option is one $40 million lump sum payment.

the second option is paying five annual payments of $10 million over the next five years.

a)If the annual interest rate is 7% ,find the present value of both options?

b) Evaluate the net present values of both option and identify which option is more cost effective for Microsoft ?

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Expert Answer

Option 1: The present value is $40 million.

Option 2...

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