Question

SOLVE WITH EXCEL FUNCTIONS. The anticipated income that a company will obtain for its activity in the next sixteen years is estimated at: The first five years $ 60,000 per year and

in the next eight they will grow at a rate of 10% per year. The last three years (years 14 to 16) will remain the same as in year 13. What would be the estimated annual average value during the sixteen years of said income, if the operation is valued at 5%?

Answer 1

As stated in the question, the income flow in the Year 1 to 6, Year 7 to 13 and Year 14 to 16 are shown in Income column as follows:

Year	Income	PV at Year=0
0
1	60000	57142.85714
2	60000	54421.76871
3	60000	51830.25591
4	60000	49362.14849
5	60000	47011.56999
6	66000	49250.21618
7	72600	51595.46457
8	79860	54052.39145
9	87846	56626.31485
10	96630.6	59322.80604
11	106293.7	62147.70156
12	116923	65107.11592
13	128615.3	68207.45478
14	128615.3	64959.48074
15	128615.3	61866.17213
16	128615.3	58920.16394
	PV=	911823.8824

The PV of each Income flow in the given year n is: Income/(1+5%)^n

For example, the PV of Income of 116923 in Year = 12 is: 116923/(1+5%)^12 = 65107.11592

Thus, the Present Value at Year=0 of Income flow over the 16 years is: 911823.8824

Consider the average annual income = x

x*(1+5%)^16 = 911823.8824

x=417717

Hence, the estimated annual average value during the sixteen years of said income is 417717, when the operation is valued at 5%