Question

if the interest is 10%, what is the present value of the Monroe corporation's profit in the next 4 years, given the following data?

1st year Profit is 8 (millions of dollars), 2nd year 10, 3rd year 12, and 4th year 14.

Answer 1

Answer : Here profit = Total amount - Present value

Simple interest = Total amount - present value.

Therefore, here we can say the profit is simple interest, i. e., Profit = Simple interest

According to the given information, four years total profit = (8 + 10 + 12 + 14) = 44 millions of dollars.

The forumula of simple interest is

Simple interest = P × r × t ...... (i)

Here P = present value; r = rate of interest = 10% = 0.1;

t = time period = 4 years.

Now from equation (i) , we get,

44 = P × 0.1 × 4

=> 44 = P × 0.4 => P = 44/0.4 = 110

Therefore, the present value is 110 millions of dollars.