Purchase Solution

Assault Weapons, Inc.

Not what you're looking for?

Ask Custom Question

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.

Offer 2
25% of the buyer's gross margin for the next four years. The buyer in this case is Air Defense, Inc. (ADI). Its gross margin is 65%. Sales for year 1 are projected to be $1 million and then grow by 40% per year. This amount is paid today and is not discounted.

Offer 3
A trust fund would be set up for the next 9 years. At the end of that period, Rambo would receive the proceeds (and discount them back to the present at 12%). The trust fund called for semiannual payments for the next 9 years of $80,000 (a total of $160,000 per year). The payments would start immediately. Since the payments are coming at the beginning of each period instead of the end, this is an annuity due. To look up the future value of the annuity due in the tables, add 1 to n (18 + 1) and subtract 1 from the value in the table. Assume the annual interest rate on this annuity is 12% annually. Determine the present value of the trust fund's final value.

Required:
Find the present value of each of the three offers and then indicate which one has the highest present value.

Purchase this Solution
Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
Recent Feedback
  • "Your explanation to the answers were very helpful."
  • "What does 1 and 0 means in the repair column?"
  • "Went through all of the formulas, excellent work! This really helped me!"
  • "try others as well please"
  • "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

View More Free Quizzes
Related BrainMass Solutions

  • Policy affecting all levels of government

    Overseeing the control of assault weapons and working with manufacturing organizations on magazine size 3. Tracking assault weapons currently in public possession. 4. Preventing the import and export of assault weapons and illegal weapons.

  • Gun Control Legislation

    Identified and explained regulations on certain types of firearms such as handguns and assault weapons.

  • Law Enforcement: Gun Control

    Government agencies argue that massacres use legal weapons. The agencies argue that half of all mass shooters use assault weapons or high capacity magazines. The agencies feel that restrictions could have saved many lives.

  • Drugs and Crime

    The more than 50 models of firearms affected by the decision are modified versions of military assault weapons that were banned by the Bush Administration in 1989 or by the assault weapons ban of 1994.

  • Explaining High Rates of US Gun Violence

    Assault Weapons Bans the manufacture of 19 military-style assault weapons, assault weapons with specific combat features, "copy-cat" models, and certain high-capacity ammunition magazines of more than ten rounds. ?

  • Topic Outline - Addiction to Medications

    Many citizens who support banning assault weapons feel that the gun itself is the cause of injury or death, instead of the individual pulling the trigger. B.

  • types of transnational crime and organized groups

    Though this has been going on for years it is only now that there is some concerted effort to fight the pirates who are equipped with assault rifles, rocket-propelled grenades, and fast motorboats.

  • Violence against Women

    Physical - includes pushing, shoving, slapping, hitting with fist, kicking, choking, grabbing, pinching, pulling hair, or threatening with weapons. 2.

  • Protection from Cybersecurity Threats

    Massachusetts: Elsevier Inc. This solution discusses issues surrounding protection from cyber-assault. The measures that can be employed to protect out banking, defense and critical infrastructure from cyber-assaults.

View More Related Solutions