Question

The XYZ company is seeing its value declining at a rate of 3.2% per year. If the current value is $2,300,000, what will the value be in 5 years?

Answer 1

Given that its value decreases by r = -3.2% (i.e decreasing means that the rate is negative) and that the current value of the company is P = 2,300,000.

The value of the company in n = 5 years is given by


`FV=P(1+r)^n \\ \\ =2,300,000(1-0.032)^5 \\ \\ =2,300,000(0.968)^5=2,300,000(0.8499) \\ \\ =\$1,954,810.81`