Your company introduced a new product line 7 years ago. The annual revenue from that product line was $4,000,000 per year in Years 0-3 and $5,000,000 per year in Years 4-7. Convert these revenues into an equivalent uniform annual series in Years 1 through 7 (the engineering econ equivalent of the average revenue per year) using an interest rate of 10% per year.
Equivalent annual revenue = PV of cash inflow/ PV annuity factor @ 10%, for 7 years
So first we need to find present value of cash inflows.
Year |
cash flow |
PV factor @ 10% |
PV of cash flow |
1 |
4000000 |
0.90909 |
3636363.636 |
2 |
4000000 |
0.82645 |
3305785.124 |
3 |
4000000 |
0.75131 |
3005259.204 |
4 |
5000000 |
0.68301 |
3415067.277 |
5 |
5000000 |
0.62092 |
3104606.615 |
6 |
5000000 |
0.56447 |
2822369.65 |
7 |
5000000 |
0.51316 |
2565790.591 |
Total |
21855242.1 |
||
PV factor @ 10% |
4.86842 |
||
Equivalent annual cost |
4489186.924 |
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