Question

Revenue is $6,000,000 the first year. You anticipate that it will increase by 6% a year for the subsequent 5 years. Assume an interest rate of 6%, compounded annually. What is the present value of revenue

Answer 1

Answer:

$28,301.886.79

Explanation:

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = $6,000,000

Cash flow in year 2 = $6,000,000 x 1.06 = 6,360,000

Cash flow in year 3 = $6,000,000 x 1.06^2 = 6,741,600

Cash flow in year 4 = $6,000,000 x 1.06^3 = 7,146,096

Cash flow in year 5 = $6,000,000 x 1.06^4 = 7574,861.76

I = 6%

PV = $28,301.886.79

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute