1The revenue for a new product that will stay in market for

1.The revenue for a new product that will stay in market for five years is projected at $45,000 in year 1, and the revenue is expected to reduce by $5,000 per year. What is the present value of the projected revenue stream if the interest rate is 8% per year compounded annually?


2.How much do you have to deposit today in order to allow 5 annual withdrawals, beginning at the end of year 8, with the first withdrawal of $1000 with subsequent withdrawals decrease at the rate of 5% over previous year’s withdrawal? The interest rate is 10%.


3.What is the amount of five equal annual deposits that can provide five annual withdrawals, where a first withdrawal of $1500 is made at the end of year six and subsequent withdrawals increase at $100 over the previous year\'s, in the interest rate of 10% compounded annually?


4.

The APR offered by a bank is 8% per year, compounded monthly. What is the APY?

Enter your answer with exactly two decimal place, as in \"8.00\" for 8%. Do not use \"%\".

Solution

Revenue for year 1 = $45000

Revenue for year 2 = $40000

Revenue for year 3 = $35000

Revenue for year 4 = $30000

Revenue for year 5 = $25000

And present value of revenue per year = R/(1+i)^n where i is interest rate nad n is years

PV of revenue for year 1 = 45000/(1+.08)^1 = $41666.67

PV of revenue for year 2 = 40000/(1+.08)^2 = $34293.55

PV of revenue for year 3 = 35000/(1+.08)^3 = $27784.13

PV of revenue for year 4 = 30000/(1+.08)^4 = $22050.9

PV of revenue for year 5 = 25000/(1+.08)^5 = $17014.58

So the PV of total revenue is $142809.8