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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?
In February 2009 Treasury 6s of 2026 offered a semiannually compounded yield of 3.5965%. Recognizing that coupons are paid semiannually, calculate the bond's price in details. What is the coupon rate / what is the YTM?
The stock price for Lawrence Corp. today is $20 and in each period the stock price goes up by 6% or down by 3% from what it was in the previous period. When the one-period interest rate is 1%, calculate the price for the put option (underlying asset:..
What is Moda Textile Factory's competitive advantage?
You will receive $1,200 at the end of the next 15 years, assuming a 8% discount rate, what is the present value of the cash flows? Future value of single sum problem
ABC corp. has equity with a market value of $750 million, debt with a market value of $330 million, and future operating lease commitments with a present value of $400 million. The firm also has a Beta of 1.2, a pre-tax cost of debt of 8%, and a marg..
Three-month European put options with strike prices of $50, $55, and $60 cost $2, $4, and $7, respectively. What is the maximum gain when a butterfly spread is created from the put options? What is the maximum loss when a butterfly spread is created ..
Given a 5 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,050, $1,250, $1,250, and $1,550.
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $2.00 coming 3 years from toda..
You want to have $3.5 million in real dollars in an account when you retire in 50 years. The nominal return on your investment is 11 percent and the inflation rate is 5.5 percent. What real amount must you deposit each year to achieve your goal? (Do ..
Global Logistics just announced it is increasing its annual dividend to $1.68 next year and establishing a policy whereby the dividend will increase by 3.25 percent annually thereafter. How much will one share of this stock be worth ten years from no..
Suppose you know that a company’s stock currently sells for $60 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it..
A forty-year annuity-immediate makes monthly payments. During the first year the monthly payments are $100 each. The payments within each year are level; however, the monthly payments in each of the years two through forty are 4% higher than those in..
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