Acme Miracle projects good things for their new weight loss pill, LoseIt. Revenues this year are...

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 of the anticipated revenues? Acme uses an interest rate of 20%.

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 equivalent annual amount for the anticipated revenues? Acme uses an interest rate of 20%.

Expert Solution


Loselt
Discount rate	0.2
Year	0	1	2	3	4	5
Cash flow stream	0	1.1	1.265	1.45475	1.6729625	1.923907
Discounting factor	1	1.2	1.44	1.728	2.0736	2.48832
Discounted cash flows project	0	0.916667	0.878472	0.841869	0.8067913	0.773175
NPV = Sum of discounted cash flows
NPV Loselt =	4.22
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor



Equvalent annuity(EAA)=	1.411082

Required rate =	0.2
Year	0.00%	1	2	3	4	5
Cash flow stream	0	1.411082	1.411082	1.411082	1.4110823	1.411082
Discounting factor	1	1.2	1.44	1.728	2.0736	2.48832
Discounted cash flows project	0	1.175902	0.979918	0.816599	0.6804988	0.567082
Sum of discounted future cashflows =	4.22
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

jeff jeffy answered 2 months ago

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