Blackman and Coulter are highly successful criminal attorneys, practicing law in a partnership. Each earns approximately $600,000 annually, sharing profits equally. Since the firm has minimal capital needs, they withdraw most of their earnings. Their capital balances currently stand at $30,000 for Blackman and $40,000 for Coulter.
Xavier is a young staff attorney who has been with the firm for eight years. Xavier's research skills and case strategy plans have contributed significantly to the firm's success, but Xavier lacks the courtroom skills to be successful as a criminal trial attorney. Xavier currently receives an annual salary of $150,000.
Blackman and Coulter both anticipate retiring in ten years, at which point the firm will disband. To induce Xavier to remain with the firm over the next ten years, Blackman and Coulter propose to admit Xavier as an equal partner, though Xavier's role in the firm will not change. Blackman and Coulter will admit Xavier in exchange for a payment equal to Xavier's increased earnings (which is equal to Black-man and Coulter's decreased earnings), discounted at 20 percent.
Required
Assuming continuation of current earnings levels, how much must Xavier pay to be admitted to the partnership?