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Which company sold for the highest cash equivalent value?

a. The owner of Company D just sold the business. The former owner received a non-interest-bearing note for $1,100,000 due in exactly 1 year. The market rate of interest is 8.4% (APR) for this type of transaction.

b. The owner of Company C just sold the business. The former owner received a non-interest-bearing note for 30 equal semi-annual payments of $45,000. The market rate of interest is 4.8% (APR) for this type of transaction.

c. Company A was purchased for $1,000,000 for cash today.

d. The owner of Company B just sold the business. The former owner received a non-interest-bearing note for 15 equal annual payments of $100,000. The market rate of interest is 4.8% for this type of transaction.

Respuesta :

jepessoa

Answer:

Company B (transaction d)

Explanation:

present value of transaction a (company D) = $1,100,000 / 1.08 = $1,018,519

present value of transaction b (company C) = $45,000 x 21.21211 (PV annuity factor, 2.4%, 30 periods) = $954,545

present value of transaction c (company A) = $1,000,000

present value of transaction d (company B)  = $100,000 x 10.52141 (PV annuity factor, 4.8%, 150 periods) = $1,052,141

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