Question

Your company introduced a new product line 7 years ago. The annual revenue from that product...

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.

Homework Answers

Answer #1

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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