1. Following is the projected net income stream associated with the use of Zartek technology. (Note: this net income stream does not take into account that Zartek’s owners invested $2,000 to develop Zartek in Year 0.) Globus Maximus Enterprises would like to buy the Zartek patent.
How could the net income data be used to help establish the dollar value of the technology (assume a prevailing interest rate for the five year time period as 7% per year)?
Show your reasoning in establishing a sales price. Be realistic in your analysis (i.e., are there other factors that should be taken into account than what is covered here?).
Net income:
Net income:
Year 1 Year 2 Year 3 Year 4 Year 5
$1,000 $1,300 $1,200 $1,300 $1,200
Initial investment in Zartek technology: $2,000
discuss what will happen to the supply, demand. and price of the soft drink in the short-term
To establish the dollar value of the Zartek technology using the net income data, we need to calculate the present value of the net income stream over the five-year period. This is done by discounting the future net income amounts to their present value using the prevailing interest rate.
Step 1: Calculate the present value factor for each year using the formula: Present Value Factor = 1 / (1 + Interest Rate)^Number of Years
For a prevailing interest rate of 7% per year and a five-year time period, we can calculate the present value factors as follows:
Year 1: Present Value Factor = 1 / (1 + 0.07)^1 = 0.9346
Year 2: Present Value Factor = 1 / (1 + 0.07)^2 = 0.8734
Year 3: Present Value Factor = 1 / (1 + 0.07)^3 = 0.8163
Year 4: Present Value Factor = 1 / (1 + 0.07)^4 = 0.7629
Year 5: Present Value Factor = 1 / (1 + 0.07)^5 = 0.7130
Step 2: Calculate the present value of each year's net income by multiplying the net income amount with its respective present value factor.
Year 1: Present Value of Net Income = $1,000 * 0.9346 = $934.60
Year 2: Present Value of Net Income = $1,300 * 0.8734 = $1,134.42
Year 3: Present Value of Net Income = $1,200 * 0.8163 = $979.56
Year 4: Present Value of Net Income = $1,300 * 0.7629 = $990.77
Year 5: Present Value of Net Income = $1,200 * 0.7130 = $855.60
Step 3: Calculate the present value of the total net income stream by summing up the present values of each year's net income.
Present Value of Net Income Stream = $934.60 + $1,134.42 + $979.56 + $990.77 + $855.60 = $4,895.95
Step 4: Subtract the initial investment in Zartek technology ($2,000) from the present value of the net income stream to determine the profit.
Profit = Present Value of Net Income Stream - Initial Investment = $4,895.95 - $2,000 = $2,895.95
Step 5: Finally, to establish a realistic sales price, you would consider other factors such as potential future growth, competition, market demand, intellectual property rights, and any additional costs or profits associated with the technology. These factors could influence the final sales price by either increasing or decreasing it based on their impact on the overall value and potential profitability of the Zartek technology.