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The board of Samad Corp., a family-owned corporation, wishes to sell the business and is considering three offers:
1.Get paid $568,000 immediately.
2.$200,000 cash now plus an annual installment for 10 years at the end of the year, or a total of $800,000.
3.An offer to manage the business for 10 years that would yield $96,000 cash at the end of the year for 10 years. The company would have to make a $20,000 investment upfront to make certain changes for the management agreement. The total cash Samad would receive is $940,000.
Samad wants an 11% rate of return on its investments.
Based on the numbers, which offer should Samad’s board accept? Show your supporting computations.