One of your friend has invented a new production technology which is secured him a $150,000...

 

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One of your friend has invented a new production technology which is secured him a $150,000 annual revenue stream of royalty payments for ever. He also explained you that the expected on going technology improvements to the production process will give him a 2% annual increase in his expected royalty revenue. He seeks your help to find out the present value of these future expected revenue on royalty payments. He expects 12% return on this project to cover his financing cost. REQUIRED; 1. Estimate the present value of the royalty payments 2. If you realised that his growth forecast is not accurate and the invention of new technologies could affect to reduce his royalty income by 3% annually, estimate the present value of this royalty payment One of your friend has invented a new production technology which is secured him a $150,000 annual revenue stream of royalty payments for ever. He also explained you that the expected on going technology improvements to the production process will give him a 2% annual increase in his expected royalty revenue. He seeks your help to find out the present value of these future expected revenue on royalty payments. He expects 12% return on this project to cover his financing cost. REQUIRED; 1. Estimate the present value of the royalty payments 2. If you realised that his growth forecast is not accurate and the invention of new technologies could affect to reduce his royalty income by 3% annually, estimate the present value of this royalty payment

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To estimate the present value of the royalty payments we can use the concept of discounted cash flow ... View the full answer