Calculate the present value of the following cases

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Calculate the present value of the following cases. Show your work.

a. You are negotiating a book deal for your newest novel in which an economist single-handedlysaves the world. The publisher offers to pay you an advance of $1 million today plus $500,000 at the end of each of the next three years. What is the present value of these payments, given your rate of discount of 5 percent?

b. You counter the publisher's offer with a counter-offer that will pay you $1.5 million today plus $5 per book sold in each of the next three years. You think you will sell 80,000 books each year in the period, but the publisher thinks you will only sell 40,000 books each year. Explain why both you and the publisher like this offer better than the deal in part a.

Reference no: EM13245504

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