Mr. Rambo, President of Assault Weapons, Inc., was pleased
to hear that he had three offers from major defense companies for
his latest missile firing automatic ejector. He will use a discount
rate of 12 percent to evaluate each offer.
Offer 1
$500,000 now plus $120,000 from the end of year 6 through 15. Also,
if the product goes over $50 million in cumulative sales by the end
of year 15, he will receive an additional $1,500,000. Rambo thought
there was a 75% probability this would happen.
Find the present value
500,000 + 0 + 0 + 0 + 0 + 0 + 120k/(1.12)^6 + . . . +
120/(1.12)^15 = PV
am i correct?