Problem 342 The Pedernales Electric Cooperative estimates th

Problem 3.42: The Pedernales Electric Cooperative estimates that the present worth now of increased revenue from an investment in renewable energy sources is $12,475,000. There will be no new revenue in years 1 or 2, but in year 3 revenue will be $250,000, and thereafter it will increase according to an arithmetic gradient through year 15. What is the required gradient, if the expected rate of return is 15% per year?

Solution

P=12475K ,G=12475K-250K=12225K

12475k+12225k(n/(1-n)ⁿ-1)

12475K+(12225K*29)

=3671655222

Rate of return=(3671655222-12475000)/12475000=28.43%