Present Value Worksheet Analysis, HSED422/MSED456

The following handout was given to a BSC Calculus II class in Summer semester 2005. Student answers to questions 1 and 4 were uninspired. How might the handout be improved to encourage students to make connections between the mathematics presented and the real world example being modeled?

MATH 142: Elements of Calculus II
Present Value Computation using Tables of Integrals

Work in groups of two to answer the questions below. Put the names of the people in your group at the top of the page and write your answers on the page. You may wish to work the problems on scratch paper before writing your final answer. This will count as one homework assignment.

This project was adapted from question 40 on page 501 of Tan's Calculus For the Managerial, Life and Social Sciences.

Elaine purchased a 10-year franchise for a fast food restaurant (for example, she paid for the right to open a Friendly's restaurant). She estimates that that restaurant will generate an income of

R(t) = 250,000 + 2000t2

dollars/year, where t is the number of years the restaurant has been in operation (i.e. time t=0 is now).
  1. The revenue function is quadratic; its graph is a parabola. Elaine's prediction is that her revenue will grow slowly for the first few years and then more rapidly. Do you think this is a reasonable prediction? If so, why? If not, what do you think would be more likely?







  2. If the predicted revenue function is accurate, how long will it take Elaine's revenue to double? Show your work.






  3. Elaine plans to use the revenue from her restaurant to buy stock in the franchise. Based on past performance, she estimates that these stocks will increase in value at 10% per year compounded continuously. If she is right, what is the present value of the franchise? (The formula for present value is on page 473 of your text.)











  4. If you were Elaine's accountant, how much would you suggest she offer for the franchise? Why?