Question

IntelAir Present Value

Answer 1

Answer:

IntelAir Present Value

The maximum amount that Purifier should pay for IntelAir is:

=  $10,538,700.00.

Explanation:

a) Data and Calculations:

Value of InterlAir:

Annual Sales Revenue = $5,000,000 ($1,000 * 5,000 units)

Annual all-inclusive cost = 3,500,000 ($700 * 5,000 units)

Net annual cash inflow = $1,500,000 ($300 * 5,000 units)

Year 1, Cash inflow from the sale of patent of the air purifying system = $2,000,000

Year 5 Technology upgrading expense = $800,000

Discount rate = 10%

Duration = 10 years

Annuity Factor for 10 years at 10% = 6.145

PV factor at Year 1 at 10% = 0.909

PV factor at Year 5 at 10% = 0.621

Present value of Cash inflows:

Net annual cash inflow $1,500,000 for 10 years at 6.145 =    $9,217,500

Year 1 Sale of patent for $2,000,000 at 0.909 =                       1,818,000

Year 5 Technology upgrade for $800,000 at 0.621 =               (496,800)

Present value of IntelAir =                                                      $10,538,700