Mr. Rambo, President of Assault Weapons Inc. was pleased to hear that he had three offers from major defence companies for his latest missile firing automatic ejector. He will use a discount rate of 12 percent to evaluate each offer. 

Offer 1 $500,000 now plus $120,000 from the end of year 6 through 15. Also, if the product goes over $50 million in cumulative sales by the end of year 15, he will receive an additional $1 ,500,000. Rambo thought there was a 75 percent probability this would happen.
Offer II Twenty-five percent of the buyer's gross margin for the next four years. The buyer in this case is Air Defence Inc. (ADI). Its gross margin is 65 percent. Sales for year 1 are projected to be $1 million and then grow by 40 percent per year. This amount is paid today and is not discounted.

Offer III A trust fund would be set up for the next nine years. At the end of that period, Rambo would receive the proceeds (and discount them back to the present at 12 percent). The trust fund called for semiannual payments for the next nine years of $80,000 (a total of $160,000 per year). The payments would start immediately (beginning).
Determine the present value of each offer and select the best offer.