Dakota Hi-C Steel signed a contract that will generate revenue of $210,000 now, $226,800 in year 1, and amounts increasing by 8% per year through year 5. Calculate the future worth of the contract at an interest rate of 8% per year. Also, develop the FV function that will correctly determine F for revenues placed in cells B2 through B7.
What will be an ideal response?
(a) Find P in year –1 and then move to year 5
P-1 = 210,000[6/(1 + 0.08)]
= 210,000(0.92593)
= $1,166,667
F = 1,166,667(F/P,8%,6)
= 1,166,667(1.5869)
= $1,851,383
(b) Spreadsheet function: = -FV(8%,5,,NPV(8%,B3:B7)+B2)
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