Question

Value of a mixed stream   Harte​ Systems, Inc., a maker of electronic surveillance​ equipment, is considering selling to a​ well-known hardware chain the rights to market its home security system. The proposed deal calls for the hardware chain to pay Harte ​$28,000 and ​$29,000 at the end of years 1 and 2 and to make annual​ year-end payments of ​$14,000 in years 3 through 9. A final payment to Harte of ​$15,000 would be due at the end of year 10.

a.  Select the time line that represents the cash flows involved in the offer.

b.  If Harte applies a required rate of return of 11​% to​ them, what is the present value of this series of​ payments?

c.  A second company has offered Harte an immediate​ one-time payment of ​$110 comma 000 for the rights to market the home security system. Which offer should Harte​ accept?

Answer 1

ab

c.

Another company offered for immediate one time payment of = $ 110000

The Immediate payment from second company is greater than the Present value of cash flow from previous company, therefore the Harte should Accept the offer.