Question

Value of a mixed stream Harte Systems, Inc., a maker of electronic surviance equipment is considering seling the rights to market is home security system to a well known hardware chain. The proposed deals for the hardware chain to pay Harte 528,000 and 521,000 at the end of years 1 and 2 and to make annual year end payments of S16,000 in years through 9 A final payment to Hate of $20.000 would be due at the end of year to a. Seled the timeline that represents the cash flows involved in the offer b. If Harte applies a required rate of return of to them, what is the present value of this series of payments? c. A second company has ofered Harte an immediate one time payment of $120,000 for the rights to market the home security system. Which offer should Hate accept? Which of the following timelines represents the cash flows involved in the offer? (Select the best answer below) ОА 2 3 9 10 528,000 521.000 $16000 516 000 520 000 OB 0 1 10 $28,000 - 521.000-516,000 -516,000 - 520,000 Oc 0 528.000 521.000 - 516,000 - $16.000 520.000

Answer 1

a). Ans- Option A

As, this timeline correctly depicts the cash inflows to harte systems.

b). Calculating the Present Value of the series of Payments:-

Year	Cash InFlows of Project ($)	PV Factor @8.00%	Present Value of Project ($)
1	28,000.00	0.9259	25,925.93
2	21,000.00	0.8573	18,004.12
3	16,000.00	0.7938	12,701.32
4	16,000.00	0.7350	11,760.48
5	16,000.00	0.6806	10,889.33
6	16,000.00	0.6302	10,082.71
7	16,000.00	0.5835	9,335.85
8	16,000.00	0.5403	8,644.30
9	16,000.00	0.5002	8,003.98
10	20,000.00	0.4632	9,263.87
			124,611.88

So, the Present value of series of Payment is $ 124,611.88

c). A second companty offers one time payment today of $120,000

As the Present value of series of payment at Required rate of 8% is $ 124,611.88 which is greater than $120,000

Thus, Harte should accept series of payment from First company.

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