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NaviNow Company agrees to pay $20 million in cash to the four former owners of TrafficEye for all of its assets and liabilities. These four owners of TrafficEye developed and patented a technology for real-time monitoring of traffic patterns on the nation's top 200 frequently congested highways. NaviNow plans to combine the new technology with its existing global positioning systems and projects a resulting substantial revenue increase. As part of the acquisition contract, NaviNow also agrees to pay additional amounts to the former owners upon achievement of certain financial goals. NaviNow will pay $8 million to the four former owners of TrafficEye if revenues from the combined system exceed $100 million over the next three years. NaviNow estimates this contingent payment to have a probability adjusted present value of $4 million. The four former owners have also been offered employment contracts with NaviNow to help with system integration and performance enhancement issues. The employment contracts are silent as to service periods, have nominal salaries similar to those of equivalent employees, and specify a profit-sharing component over the next three years (if the employees remain with the company) that NaviNow estimates to have a current fair value of $2 million. The four former owners of TrafficEye say they will stay on as employees of NaviNow for at least three years to help achieve the desired financial goals. Should NaviNow account for the contingent payments promised to the former owners of TrafficEye as consideration transferred in the acquisition or as compensation expense to employees?
A company is considering a 5-year project that opens a new product line and requires an initial outlay of $85,000. The assumed selling price is $97 per unit, and the variable cost is $63 per unit. Fixed costs not including depreciation are $20,000 pe..
If the returns from a security were known with certainty, what shape would the probability distribution of returns graph have? What is the nature of the risk associated with "risk-free" U.S. government bonds?
You are evaluating a project that requires an initial investment of $225,000 and has equal annual cash inflows of $85,000 each year for the next five years. What is the payback period?
Which of the following are advantages of the corporate form of organization?
Mathematics of Finance - A family has just purchased a new home for $165,000. After they put down a 20% down payment, they borrow the rest at 5.35% for 15 years. How much is the monthly mortgage payment? How much interest will they pay over the entir..
If the annuitant dies after annuity benefit payments have started under a “pure life annuity” settlement option
Suppose that the standard deviation of returns from a typical share is about 0.55 (or 55%) a year. The correlation between the returns of each pair of shares is about 0.4. Calculate the variance and standard deviation of the returns on a portfolio th..
As residual claimants, which investors claim any cash flows to the firm that remain after the firm pays all other claims?
The depreciation is best defined as the: A university converted the bottom 3 floors of an apartment building they own to classrooms. The option that is forgone so that the university can utilize it for classroom is: When a firm is evaluating the intr..
A zero coupon bond with a face value of $1,000 is issued with an initial price of $507.96. The bond matures in 18 years. What is the implicit interest, in dollars, for the first year of the bond's life? Use semiannual compounding.
Calculate the return on investment period (payback period) for upgrading and replacement option - calculate NPV of modernization and the replacement option.
Aloha Inc. has 7 percent coupon bonds on the market that have 12 years left to maturity. If the YTM on these bonds is 8.1 percent, what is the current bond price?
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