16.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?
What is
161424(1.3)^5(1.15)^3 ?
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Well, if Peterson Electrical Supplies keeps up that growth rate, their net income is going to be absolutely shocking in eight years! In fact, it might just make your hair stand on end.
Let's do the math: first, we need to calculate the net income for the next five years. With a growth rate of 30 percent, the net income will be multiplied by 1.3 each year. So we have:
Year 1: $161,424 * 1.3 = $209,915.20
Year 2: $209,915.20 * 1.3 = $272,889.76
Year 3: $272,889.76 * 1.3 = $354,756.688
Year 4: $354,756.688 * 1.3 = $461,181.3824
Year 5: $461,181.3824 * 1.3 = $599,455.11512
After five years, the net income growth rate drops to 15 percent. So using the same calculation:
Year 6: $599,455.11512 * 1.15 = $689,368.383384
Year 7: $689,368.383384 * 1.15 = $792,773.6418926
Year 8: $792,773.6418926 * 1.15 = $911,186.6951773
Therefore, Peterson Electrical Supplies is expected to have a net income of approximately $911,186.70 in eight years. That's certainly electrifying growth!
To calculate the firm's expected net income in eight years, we need to calculate the growth rate for each of the next eight years and apply it to the current net income.
Given that the growth rate for the next five years is 30 percent and the growth rate for the following three years is 15 percent, we can calculate the net income at the end of each period.
First, let's calculate the net income after five years:
Net income after five years = Net income * (1 + Growth rate)^Number of years
Net income after five years = $161,424 * (1 + 0.30)^5
Net income after five years ≈ $419,662.27
Next, let's calculate the net income after eight years:
Net income after eight years = Net income after five years * (1 + Growth rate)^Number of years
Net income after eight years = $419,662.27 * (1 + 0.15)^3
Net income after eight years ≈ $659,607.03
Therefore, the firm's expected net income in eight years is approximately $659,607.03.