Revenue from gas wells that have been in production for at least 5 years tends to follow a decreasing geometric gradient. One particular rights holder received royalties of $4000 per year for years 1 through 6; however, beginning in year 7, income decreased by 15% per year each year through year 14. Calculate the future value in year 14 of the royalty income from the wells provided all of it was invested at 10% per year.

Future value in year 14 of the royalty income is $91,603.32.

Explanation:

Note: See the attached excel for the calculation of the future value in year 14 of the royalty income from the wells.

In attached excel file, the royalties received per year from year 7 is calculated using the following formula:

Current Year Royalties Received = Previous Year Royalties Receive * (100% - Yearly Decreasing Rate) = Previous Year Royalties Receive * (100% - 15%).

From the attached excel file, future value in year 14 of the royalty income (in bold bold red color) is $91,603.32.

2b2t

explanation:

2b2t

u = 30

continuing your method

= +

subtract from both sides

= - thus

= -

= ⇒ u = 30