I need help with this problem. Please help me solve it step by step, not using E
ID: 2811047 • Letter: I
Question
I need help with this problem. Please help me solve it step by step, not using Excel. Thank you!
You have successfully started and operated a company for the past 10 years. You have decided that it is time to sell your company and spend time on the beaches of Hawaii. A potential buyer is interested in your company, but he does not have the necessary capital to pay you a lump sum. Instead, he has offered $500,000 today and annuity payments for the balance. The first payment will be for $160,000 in three months. The payments will increase at 1.6 percent per quarter and a total of 20 quarterly payments will be made. If you require an EAR of 8 percent, how much are you being offered for your company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Offer to company:
= $3,040,777.83+$500,000
= $3,540,777.83
Hence, offer for the company is $3,540,777.83
PV of quarterly payments [P÷(r-g)]×[1-[(1+g)÷(1+r)]^n] Here, 1 Interest rate per annum 7.77% =((1+8%)^(1/4)-1)*4 2 Number of years 5 3 Number of compoundings per per annum 4 4 = 1÷3 Interest rate per period ( r) 1.94% 5 = 2×3 Number of periods (n) 20 Growth rate (g) 1.60% First payment (P) $ 160,000 PV of quarterly payments $ 3,040,777.83 (160000÷(1.94%-1.6%))×(1-((1+1.6%)÷(1+1.94%))^20)