Homework Answers
5. Revenue in first year = 50,000
Life = 15 years
Interest Rate = 7%
A. PW if the annual increase is 5,000 per year
PW = 50,000 (P/A, 7%, 15) + 5,000 (P/G, 7%, 15)
PW = 50,000 (9.1079) + 5,000 (52.4461) = 717,625.5
B. PW if the annual increase is 10% per year
PW = 50,000 [1 – (1 + g) N (1 + i) – N ÷ i-g]
PW = 50,000 [1 – (1 + 0.10) 15 (1 + 0.07) – 15 ÷ 0.07 – 0.10]
PW = 856,711.62
6. Investment = 10,000
Interest = 9% compounded monthly
Monthly interest = 0.09 / 12 = 0.0075
Time = 7 years = 7*12 = 84
FV = 10,000 (1 + 0.0075) 84 = 18,732
OR
FV = 10,000 (F/P, 0.75%, 84)
FV = 10,000 (1.8732) = 18,732
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