Question

Company A showed a profit of $1.3 million last year. The CEO of the company expects the profit to increase by 7% each year over the next 5 years and the profits will be continuously invested in an account bearing a 4.5% APR compounded continuously.

(a) Write the flow rate, R, of the income stream. (Let t represent the number of years after the company showed a profit of $1.3 million.)
R(t) = _____________ million dollars per year

(b) Calculate the 5-year future value. (Round your answer to three decimal places.)
$ __________ million

(c) Calculate the 5-year present value. (Round your answer to three decimal places.)
$ __________ million

Answer 1

The return of the company in form of profits

R(1) = $1.3 millions

R(2) = $ 1.391 millions

R(3) = $1.488 millions

R(4) =1.592 millions

R(5) = 1.704 millions

All the above calculation is based on increase in 7% profits by every year