Spock purchased a space invader entertainment machine at the beginning of year 1 for €1000. 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% on the next best investment. The present value of €1 receivable at the end of a period discounted at 10% is as follows:
End of year 1 0.909 End of year 2 0.826 End of year 3 0.751
Required:
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.