A manufacturing company expects a steady 2% annual growth in profits over the next three years....

A manufacturing company expects a steady 2% annual growth in profits over the next three years. The company wants to invest the profits at a 10% interest rate. Expected annual profit of the company in year one is $1,000. How much will be accumulated by the company by the end of the third year?

Expert Solution

Future worth of geometric series = A*[(1+i)^n - (1+g)^n]/(i-g)

Future worth of profit = 1000*[(1+0.1)^3 - (1+0.02)^3]/(0.1-0.02)

= 1000*[(1.1)^3 - (1.02)^3]/(0.08)

= 1000*3.3724

= 3372.40

Rahul Sunny answered 2 years ago

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