Growth rate: Peterson Electrical Supplies has generated a net income of $161,424 this year. The firm expects to see an annual growth of 30 percent for the next five years, followed by a growth rate of 15 percent for each of the next three years. What will be the firm's expected net income in eight years? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To calculate the expected net income in eight years, we need to use the future value formula:

FV = PV x (1 + r)^n

Where:
PV = Present value (net income for the current year)
r = Annual growth rate
n = Number of years

First, we need to calculate the net income after five years:
Net income after 5 years = $161,424 x (1 + 0.3)^5 = $792,683

Then, we need to calculate the net income after eight years, using the growth rate of 15% for the next three years:
Net income after 8 years = $792,683 x (1 + 0.15)^3 = $911,546 (rounded to the nearest dollar)

Therefore, the best choice is C, with an expected net income of $911,546 in eight years.

Growth Rate: Peterson Electrical Supplies Has Generated a Net Income