Your professor is starting a new company, NetFlops. It will be an online streaming service showcasing...

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Your professor is starting a new company, NetFlops. It will be an online streaming service showcasing only the greatest movie flops. However, to acquire the rights to the movies and to build out sufficient server capacity, she needs some startup capital. In exchange for $50,000 today, she offers to give you 50% of all future cash flows (she keeps the other 50% because it's her amazing idea and she'll manage the company). She expects cash receipts to be $6,000 per year starting in year 1 until year 9. She then expects the company will close due to poor management, and there will be no other cash flows. a. Should you give her the $50,000 when you could earn 12% interest per year (i.e., annual compounding) in a savings account? Please show your work. b. Should you give her the $50,000 if the company does not close and stays in business forever? Your professor is starting a new company, NetFlops. It will be an online streaming service showcasing only the greatest movie flops. However, to acquire the rights to the movies and to build out sufficient server capacity, she needs some startup capital. In exchange for $50,000 today, she offers to give you 50% of all future cash flows (she keeps the other 50% because it's her amazing idea and she'll manage the company). She expects cash receipts to be $6,000 per year starting in year 1 until year 9. She then expects the company will close due to poor management, and there will be no other cash flows. a. Should you give her the $50,000 when you could earn 12% interest per year (i.e., annual compounding) in a savings account? Please show your work. b. Should you give her the $50,000 if the company does not close and stays in business forever?

Answer rating: 100% (QA)

To determine whether its a good investment to give your professor 50000 for a 50 share of future cash flows well analyze the two scenarios presented a ... View the full answer