Question

Assume that total return (income) of a defense project increases as geometric gradient but the cost remains constant. As a result, the net income (profit) begins as a negative value, dominated by high cost, but subsequently passes through zero into the positive range as income improves. Find the present worth of profit (net income), with an interest rate of i.

a) (PV = P(1 + i)^t)
b) (PV = P(1 - (1 + i)^-t)i)
c) (PV = P(1 - (1 + i)^-t)i + Ci)
d) (PV = Pi - Ci)

Answer 1

To find the present worth of profit (net income), use the formula PV = Pi - Ci. The present worth of income can be calculated using the formula PV = P(1 - (1 + i)^-t)i. Substitute the values into the formulas to determine the present worth of profit (net income).

Step-by-step explanation:

To find the present worth of profit (net income), we can use the formula:

PV = Pi - Ci

Where PV is the present worth of profit, Pi is the present worth of income, and Ci is the present worth of cost.

Since the total return (income) of the defense project increases as a geometric gradient and the cost remains constant, the present worth of income can be calculated using the formula:

PV = P(1 - (1 + i)^-t)i

Where P is the initial income, i is the interest rate, and t is the time period.

By substituting the appropriate values into the formulas, we can determine the present worth of profit (net income).