Calculate the ideal economic income

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Spock purchased a space invader entertainment machine at the beginning of Year 1 for €1,000. He expects to receive at annual intervals the following receipts: at the end of Year 1 €400; end of Year 2 €500; end of Year 3 €600. At the end of Year 3 he expects to sell the machine for €400.

Spock could receive a return of 10 per cent on the next best investment. The present value of €1 receivable at the end of a period discounted at 10 per cent is as follows:

End of Year 1          End of Year 2           End of Year 3
0.909,                    0.826,                         0.751

Required:

Problem 1: Calculate the ideal economic income, ignoring taxation, and working to the nearest whole euro. Your answer should show that Spock's capital is maintained throughout the period and that his income is constant.

Reference no: EM132664618

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