(7) Acme Miracle projects good things for their new weight loss pill, LoseIt. Revenues this year...
(7) Acme Miracle projects good things for their new weight loss pill, LoseIt. Revenues this year are expected to be $1.1 million, and Acme believes they will increase 15% per year for the next 5 years. What is the present value for the anticipated revenues? Acme uses an interest rate of 20%
. (a) 216974 (b) 4216974 (c) 6216974 (d) 1216974
Homework Answers
Option (b).
- Starting year 2, Revenue in year N = Revenue in year (N - 1) x 1.15, and
- PV factor in year N = (1.20)-N.
Present value of revenue as follows.
| Year | Revenue ($) | PV factor @20% | Discounted Revenue ($) |
| (A) | (B) | = (A) x (B) | |
| 1 | 1100000 | 0.8333 | 916667 |
| 2 | 1265000 | 0.6944 | 878472 |
| 3 | 1454750 | 0.5787 | 841869 |
| 4 | 1672962.5 | 0.4823 | 806791 |
| 5 | 1923906.875 | 0.4019 | 773175 |
| Present Value ($) = | 4216974 |
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