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
