What is the future value of each of the following streams of payments?
1. $500 a year for 10 years compounded annually at 5 percent
2. $100 a year for 5 years compounded annually at 10 percent
3. $35 a year for 7 years compounded annually at 7 percent
4. $25 a year for 3 years compounded annually at 2 percent
Floating Homes, Inc. is a manufacturer of luxury pontoon and house boats that sell for $40,000 to $100,000. To estimate its revenues for the following year, Floating Homes divides its boat sales into three categories based on selling price (high, medium, and low) and estimates the number of units it expects to sell under three different economic scenarios. These scenarios include a recession (Scenario I), a continuation of current conditions in which the economy is level (Scenario II), and a strong economy (Scenario III). These estimates are given below:
|
|
Scenario I (Recession)
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Scenario II (Level Economy)
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Scenario III (Strong Economy)
|
|
Probability
|
25%
|
50%
|
25%
|
|
High-Priced Boats Category
|
|
|
|
|
Unit sales
|
50
|
400
|
1,000
|
|
Average price per unit
|
$90,000
|
$90,000
|
$90,000
|
|
|
|
|
|
|
Medium-Priced Boats Category
|
|
|
|
|
Unit sales
|
100
|
800
|
3,000
|
|
Average price per unit
|
$70,000
|
$70,000
|
$70,000
|
|
|
|
|
|
|
Low-Priced Boats Category
|
|
|
|
|
Unit sales
|
200
|
1,500
|
5,000
|
|
Average price per unit
|
$50,000
|
$50,000
|
$50,000
|
Using these estimates, calculate the expected revenue for Floating Homes, Inc. for the following year.