Jowel Smithers and Sonda Richards merged all of their financial resources and opened a mobile phone sales and repair business in the upscale Domain Mall in Los Angeles 10 years ago with an initial investment of $2.5 million. As revenues increased significantly over the first 4 years, they took out salaries that totaled $500,000 each year for the two of them. With increased success, they decided to pay themselves a total of $1.7 million each year from years 5 through 10. They hoped at the initiation of the joint business venture to make 10% per year on the investment in terms of salaries. (a) Determine the equivalent future worth after 10 years of the salaries. (b) If they had been satisfied with a $5 million future worth, calculate the size that the initial investment could have been instead of the $2.5 million, provided they had the funds available.
Jowel Smithers and Sonda Richards merged all of
their financial resources and opened a mobile
phone sales and repair business in the upscale Domain
Mall in Los Angeles 10 years ago with an
initial investment of $2.5 million. As revenues increased
significantly over the first 4 years, they
took out salaries that totaled $500,000 each year
for the two of them. With increased success, they
decided to pay themselves a total of $1.7 million
each year from years 5 through 10. They hoped at
the initiation of the joint business venture to make
10% per year on the investment in terms of salaries.
(a) Determine the equivalent future worth after
10 years of the salaries.
(b) If they had been satisfied with a $5 million
future worth, calculate the size that the initial
investment could have been instead of the
$2.5 million, provided they had the funds
available.
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