Your high-tech company has just launched a hot new gadget. Financial analysts predict that the new product will generate profits for $1,500,000, starting next year and, after that, growing at a rate of 7% for the next 4 years. At this point, competitors will likely enter the market with similar products and drive your company's profits down at a rate of 2% per year forever.
The interest rate is 8%. What is the present value of the profits generated by your new product?