Final answer:
To determine the total amount customers owe Lupin each year, the present values of future payments are calculated using a 15% interest rate, which gives a total of $51.3 million when combining present payments and the present values of future payments.
Step-by-step explanation:
Determining Total Amount Owed
To calculate the total amount that customers owe Lupin each year, we need to address the future value of the payments using the provided interest rate. Assuming we are using a 15% interest rate, we can find the present value (PV) of each payment. The payments from the firm are $15 million now (which is already in present value), $20 million in one year, and $25 million in two years.
The present value for future payments can be calculated using the formula:
PV = Future Value / (1 + Interest Rate)number of years t. For $20 million in one year, the present value is $20 million / (1 + 0.15)1 = $17.39 million approximately. For $25 million in two years, the present value is $25 million / (1 + 0.15)2 = $18.91 million approximately.
We then sum these present values to get the total amount customers owe Lupin: $15 million (present) + $17.39 million (1 year) + $18.91 million (2 years) = $51.3 million in present value terms.