A software company that installs systems for inventory control using RFID technology spent $720,000 per year for the past 3 years in developing their latest product. The company optimistically hopes to recover its investment in 5 years on a single contract beginning immediately (year 0). The company is negotiating a contract that will pay $285,000 now and a to-be-agreed-upon annual increase of a constant amount each year through year 5. How much must the income increase (an arithmetic gradient) each year if the company wants to realize a return of 13% per year?
A software company that installs systems for inventory control using RFID technology spent $720,000 per year for the past 3 years in developing their latest product. The company optimistically hopes to recover its investment in 5 years on a single contract beginning immediately (year 0). The company is negotiating a contract that will pay $285,000 now and a to-be-agreed-upon annual increase of a constant amount each year through year 5. How much must the income increase (an arithmetic gradient) each year if the company wants to realize a return of 13% per year?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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A software company that installs systems for inventory control using RFID technology spent $720,000 per year for the past 3 years in developing their latest product. The company optimistically hopes to recover its investment in 5 years on a single contract beginning immediately (year 0). The company is negotiating a contract that will pay $285,000 now and a to-be-agreed-upon annual increase of a constant amount each year through year 5. How much must the income increase (an arithmetic gradient) each year if the company wants to realize a return of 13% per year?
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