Question

The HRI company is considering selling its School of Business to Yale. The proposed deal would...

The HRI company is considering selling its School of Business to Yale. The proposed deal would require Yale to pay HRI $30,000 and $25,000 at the end of years 1 and 2, and to also make yearly payments (at the end of the year) of $15,000 in years 3 through 9. Yale would make a final payment to HRI for $10,000 at the end of year 10. If the discount rate is 12% what is the present value of the series of payments?

A. $54,585

B. $105,250

C. $109,160

D. $104,520

E. $54,735

F. None of the above

Cornell has also offered to acquire HRI with a one time payment of $100,000. Which offer should HRI take and why?

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Homework Answers

Answer #1

1. Use NPV function in EXCEL to find the present value of payments

=NPV(rate,Year1 to Year10 cashflows)

=NPV(12%,ear1 to Year10 cashflows)=$104,508.28

None of the above is correct

discount rate 12%
Year1 30000
Year2 25000
Year3 15000
Year4 15000
Year5 15000
Year6 15000
Year7 15000
Year8 15000
Year9 15000
Year10 10000
Present value 104508.28

2. They should accept yale's offer because its present value is higher than the today's offer of $100,000 by Cornell.

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