Question

You work for Sony Music and you are in charge of negotiating the price to purchase the publishing rights to Taylor Swift's songs published before 2018. Taylor Swift currently owns her own publishing rights. You estimate that they will bring in $7 million per year on average for the next 10 years. Your boss told you the appropriate interest rate to use is 8 percent.

What is the most you should offer Taylor Swift for the publishing rights? Ignore taxes.

$26 million (rounded)

$51 million (rounded)

$70 million (rounded)

$47 million (rounded)

Answer 1

Given information,

Taylor swift will bring $7 million per year for 10 years and entity's rate of interest is 8%

so,present value of future amount receivables is required to be find out to set the negotiation price, it is to be calculated as follows

future value = receivables per year [(1+i)^n-1]/i(1+i)^n

where i=8%, n = 10 years, receivables per year = $ 7 million

Hence negotiable price = $ 7 million*6.710

= $47 million (rounded off)