Your company will generate $55,000 in annual revenue each year for the next seven years from a new information database. If the appropriate discount rate is 7.4 percent, what is the present value of the savings?

To calculate the present value (PV) of the future revenue, we will use the formula for the present value of an annuity. Since the company will generate a fixed revenue of $55,000 per year for seven years, we treat this as an annuity. The formula is:

\[
PV = \frac{C}{r} \times \left(1 - \frac{1}{(1 + r)^t}\right)
\]

Where:
- $ C $ = annual revenue ($55,000),
- $ r $ = discount rate (7.4% or 0.074),
- $ t $ = number of years (7 years).

Now we can calculate:

\[
PV = \frac{55000}{0.074} \times \left(1 - \frac{1}{(1 + 0.074)^7}\right)
\]

Let me calculate the value.The present value of the savings, given the revenue of $55,000 per year for the next seven years at a discount rate of 7.4%, is approximately **$292,321.68**.

Do you need further details or have any questions about the calculation?

Here are five related questions to deepen your understanding:
1. How does a higher discount rate affect the present value of future cash flows?
2. What is the difference between the present value of an annuity and the present value of a lump sum?
3. How would this calculation change if the revenue amount varied each year?
4. What if the discount rate were compounded monthly rather than annually—how would that affect the present value?
5. How do you calculate the present value of perpetuity versus an annuity?

**Tip:** When dealing with annuities, the present value decreases as the discount rate increases because the value of future cash flows diminishes when discounted at a higher rate.

Learn how to calculate the present value of $55,000 annual revenue for 7 years with a 7.4% discount rate. This step-by-step guide covers key finance concepts like the present value of annuities and the time value of money, perfect for students and professionals alike.

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