Suppose a company did 2000000 in annual maintenance in 2013

Suppose a company did $2,000,000 in annual maintenance in 2013 and expects 80% of those to renew for 2014. Suppose that product sales for 2013 were $2,000,000 (which included free maintenance in 2013) and 75% of those were expected to pay an annual maintenance of 10% of the purchase price in 2014. What will be the annual maintenance collected in 2014?

Solution

Solution:-

In year 2013 annual maintenance done = $ 2,000,000

Out of this 80% is expected to renew in 2014 = $ 2,000,000*0.8 = $ 1600000

Now Sales in 2013 = $2,000,000

75% of these sales = 0.75$* 2,000,000 = $1500000

Now out of this 75%, 10% annual maintenance was expected to be paid

In 2014 = 0.10*$1500000 = $150000

So, Total annual maintenance in 2014 = $ 1600000 + $150000

= $1750000