Answer:
[ 250000 / ( 0.97 ) ] * [ 1 - ( (1 +1.9) / (1+ 2.87 ) ^25 ] + $800000 is the amount being offered
Explanation:
Amount offered today = $800000
First payment (p) = $250000
EAR = 12 percent
payments increase by 1.9 percent per quarter
Total amount of payments = 25 quarterly payments = 6.25 years
note : there are 4 quarters in a year
How much is been offered for the company
APR = (1+ EAR)^(1/n)*n
= ( 1 +12%)^(1/4)*4 = 11.49%
( interest rate per annum ) = 11.49%
number of compounding interest per annum = 4
interest rate per period (r) = 2.87%
number of periods(n) = 25
growth rate(g) = 1.9%
first we have to calculate the PV of Cash-flows of the 1st payment ( $250000)
pv = [ p / (r-g) ] * [ 1 - [(1 +g ) / (1 + r)]^n ]
= [ 250000 / ( 0.97 ) ] * [ 1 - ( (1 +1.9) / (1+ 2.87 ) ^25 ]
