Question

please solve the question in word format not in excel

A major electronics manufacturer expects to generate 4 years of revenue from its recently won governmer contract. The company forecasts that the revenue will be $200 million in the first year, and will increase by million every year for the following 3 years (years 2, 3, and 4). Using the end-of-the-year convention, what the present worth of the entire 4-year revenue stream at an interest rate of 8% per year? Solution: Discount Rate Incremental revenue in $ million 5 Year 1 2 3 4 Revenue (in million $) 200 205 210 215 = NPV = (Discount rate, Revenue in million $ in first year: revenue in million $ in the 4rth year) = 685.68

Answer 1

Let Revenue in Year n be denoted by CFn

Given, CF1 = $200
CF2 = $205
CF3 = $210
CF4 = $215

Discount Rate = r = 8%

NPV = CF1/(1+r) + CF2/(1+r)² + CF3/(1+r)³ + CF4/(1+r)⁴

= 200/(1+0.08) + 205/(1+0.08)² + 210/(1+0.08)³ + 215/(1+0.08)⁴

= $685.68