Question

0/1 View Policies Show Attempt History Current Attempt in Progress Crane Company signs a contract to sell the use of its patented manufacturing technology to Blue Spruce Corp. for 14 years. The contract for this transaction stipulates that Blue Spruce Corp. pays Crane $18,000 at the end of each year for the use of this technology. Using a discount rate of 10%, what is the value in use of the patented manufacturing technology (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Value in use $ e Textbook and Media Attempts: 1 of 3 used Submit Answer Save for Later

Answer 1

Requirement:- What is the value in use of patented manufacturing technology?

Solution:-

Value in use $132,606 Calculation of Value in Use Amount = $18,000 Discount rate = 10% Number of years = 14 Formula to Calculate PVAF for 14 years = (1/1 + Rate) number of years Formula to Calculate PVAF for 14 years = (1/1.01)1 + (1/1.01)2 + (1/1.01)3 + (1/1.01)4 + (1/1.01)5 + (1/ 1.01)6+ (1/1.01)?+ (1/1.01)8 + (1/1.01)9+ (1/1.01,10 + (1/1.01,11 + (1/1.01)12 + (1/1.01)13 + (1/1.01)14 PVAF for 14 years = 0.90909 +0.82645 +0.75131 + 0.68301 +0.62092 +0.56447 +0.51316 +0.46651 +0.42410 +0.38554 +0.35049 +0.31863 +0.28966 +0.26333 = 7.367 Equal amount is being paid at equal intervals so we can use present Value Annuity table. Value in use = Amount * PVAF (Discount rate, Number of years) Value in Use = $18,000 * PVAF (10%, 14) Value in Use = $18,000 * 7.367 Value in Use = $132,606

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