A couple is deciding to invest in the laundromatbusiness. There are two laundromat stores available for sale. Theycan only afford to buy one of them.
The annual flow of income fromeach of the available laundromats is given below:
Laundromat 1: I’(t) = dI(t)/dt =9000e^(.04t)
Laundromat 2: I’(t) = dI(t)/dt = 12500
The couple has decided to use the Present Value of eachof the Laundromats after 8 years, at an annual interest rate of10%, to compare the value of both investments.
They will buy the Laundromat with the highest PresentValue.
Find the Present Value of each Laundromat
Which Laundromat should the couple buy?Explain.
Hint:PV(t) = Definite ? I’(t)e^(-rt)dt, taken between (a
Herea=0; b=8
r= 10%/100 = .10
