Question

Answer the question. A major electronics manufacturer expects to generate 4 years of revenue from its recently won government contract. The company forecasts that the revenue will be $200 million in the first year, and will increase by $5 million every year for the following 3 years (years 2, 3, and 4). Using the end-of-the-year convention, what is the present worth of the entire 4-year revenue stream at an interest rate of 8% per year? 1 i F B 1 Dr E E %

Answer 1

Ans $ 710.44

Year	Project Cash Flows (i)	DF@ 8%	DF@ 8% (ii)	PV of Project ( (i) * (ii) )
1	200	1/((1+8%)^1)	0.926	185.19
2	210	1/((1+8%)^2)	0.857	180.04
3	220.5	1/((1+8%)^3)	0.794	175.04
4	231.525	1/((1+8%)^4)	0.735	170.18
		PV		710.44