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Exercise 1 Income from the sale of application software (apps) is usually constant for several years and then decreases quite rapidly as the market gets close to saturation. Income from one smart phone app was $125,000 in years 1 through 4 and then decreased by 20% per year through year 10. Determine the equivalent uniform annual income in years 1 through 10, using an interest rate of 14% per year.

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Answer #1

Answer

Year

Income

PVF @ 14%

Present Value

1

         125,000

0.8772

          109,649.12

2

         125,000

0.7695

            96,183.44

3

         125,000

0.6750

            84,371.44

4

         125,000

0.5921

            74,010.03

5

         100,000

0.5194

            51,936.87

6

           80,000

0.4556

            36,446.92

7

           64,000

0.3996

            25,576.79

8

           51,200

0.3506

            17,948.62

9

           40,960

0.3075

            12,595.53

10

           32,768

0.2697

               8,838.97

Total

          517,557.73

Present Value of Project = $517,557.73

PVAF @14% for 10 years = 5.2161156

Equivalent Uniform Annual Income = Present Value of Project / PVAF @14% for 10 years

= $517,557.73 / 5.2161156

Equivalent Uniform Annual Income = $99,222.83

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