Valuation of intangibles with perpetuity formulas When the American Basketball Association (ABA) merged with the National Basketball

Question:

Valuation of intangibles with formulas When the American Basketball Association (ABA) merged with the National Basketball Association (NBA), the owners of the ABA St. Louis Spirits agreed to dissolve their team and not enter the NBA. In return the owners received a promise in from the NBA that the NBA would pay to the Spirits’ owners an amount each year equal to 40% of the TV revenues that the NRA paid to any one of its regular teams. Currently, the owners receive $4 million per year. The NBA wants to pay a single amount to the owners now and not have to pay more in the future. Of course, the owners prefer to collect more, rather than less, but here they want to know the reasonable minimum that will make them indifferent to the single payment in lieu of receiving the annual payments in Ignore income tax effects.
a. Assume the owners expect the TV revenues to remain constant, so that they can expect $4 million per year in and use an interest rate of 8% in their discounting calculations. What minimum price should these owners be willing to accept?
b. Refer to the specifications for the preceding question, lithe owners use a smaller interest rate for discounting, will the minimum price they are willing to accept increase, decrease, or remain unchanged?
c. The owners use an 8% discount rate, and they expect TV revenues to increase by 2% per year in What minimum price should the owners be willing to accept?
d. Refer to the specifications in c. If the owners use a smaller interest rate for discounting, will the minimum price they are willing to accept increase, decrease, or remain unchanged?
e. Refer to the specifications in c. If the owners assume a smaller rate for growth in receipts from the NRA, will the minimum price they are willing to accept increase, decrease, or remain unchanged?
Required:
Using and present value techniques, including perpetuities to solve a variety of realistic problems, we give no hints as to the specific calculation with the problems.

Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth... Perpetuity
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