Your machine operator is becoming more productive, and generates additional profit each year. You expect to receive $20,000 in profit at the end of this year, but this will increase 5% a year for the next 10 years. If you have an 8% interest rate on your investments, what is the Present Value of the profits over the next 10 years? Solution Hi, Please find the detailed answer as follows: Present Value = 20000/(1+8%)^1 + 20000*(1+5%)^1/(1+8%)^2 + 20000*(1+5%)^2/(1+8%)^3 + 20000*(1+5%)^3/(1+8%)^4 + 20000*(1+5%)^4/(1+8%)^5 + 20000*(1+5%)^5/(1+8%)^6 + 20000*(1+5%)^6/(1+8%)^7 + 20000*(1+5%)^7/(1+8%)^8 + 20000*(1+5%)^8/(1+8%)^9 + 20000*(1+5%)^9/(1+8%)^10 = $163671.08 Answer is $163671.08. Thanks. .

1. Your machine operator is becoming more productive, and generates additional profit each year.
You expect to receive $20,000 in profit at the end of this year, but this will increase 5% a year
for the next 10 years. If you have an 8% interest rate on your investments, what is the Present
Value of the profits over the next 10 years?
Solution
Hi,
Please find the detailed answer as follows:
Present Value = 20000/(1+8%)^1 + 20000*(1+5%)^1/(1+8%)^2 + 20000*(1+5%)^2/(1+8%)^3
+ 20000*(1+5%)^3/(1+8%)^4 + 20000*(1+5%)^4/(1+8%)^5 + 20000*(1+5%)^5/(1+8%)^6 +
20000*(1+5%)^6/(1+8%)^7 + 20000*(1+5%)^7/(1+8%)^8 + 20000*(1+5%)^8/(1+8%)^9 +
20000*(1+5%)^9/(1+8%)^10 = $163671.08
Answer is $163671.08.
Thanks.