Sub part (a)
To determine: Time line.
Introduction:
Time line: A time line in business is a visual representation of a sequence of events or it is a length of time that a project is expected to take.
Sub part (b)
To determine:
Introduction:
Time line: A time line in business is a visual representation of a sequence of events or it is a length of time that a project is expected to take.
Future value: The future value refers the value of present amount at a future date.
Sub part (c)
To determine: Present value in time line.
Introduction:
Time line: A time line in business is a visual representation of a sequence of events or it is a length of time that a project is expected to take.
Present value: The present value refers to the today’s value of a future amount.
Sub part (d)
To discuss: importance of present value and future value in decision making.
Introduction:
Present value: The present value refers to the today’s value of a future amount.
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Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
- Problem 04: Investor Doe has $10,000 to invest in four projects. The following table gives the cash flow for the four investments Project 1 2 Year 1 -1.00 -1.00 0.00 -1.00 Cash flow ($1000) at the start of Year 2 Year 3 Year 4 0.30 0.20 0.80 0.60 0.50 0.60 -1.00 0.40 1.80 1.50 1.90 1.80 Year 5 1.20 1.30 0.80 0.95 The information in the table can be interpreted as follows: For project 1, $1.00 invested at the start of year 1 will yield $.50 at the start of year 2, $.30 at the start of year 3, $1.80 at the start of year 4, and $1.20 at the start of year 5.The remaining entries can be interpreted similarly. The entry 0.00 indicates that no transaction is taking place. Doe has the additional option of investing in a bank account that earns 6.5% annually. All funds accumulated at the end of 1 year can be reinvested in the following year. Formulate the problem as a linear program to determine the optimal allocation of funds to investment opportunities.arrow_forwardDiscount Rate 12% Investment Project Cash Flow Total Net Cash Flow Initial Investment $ (8,000) ? Year 1 $ 800 ? Year 2 $ 900 ? Year 3 $ 1,500 ? Year 4 $ 1,800 ? Year 5 $ 3,200 NPV of investment $ ? Estimated Payback Period ? Estimate the total net cash flows, NPV of Investment and Estimated Payback Period using the excel's formula.arrow_forwardQuestion list ✔Question 1 Data table A 1 2 Projected cash outflow 3 Net initial investment 4 Projected cash inflows 5 Year 1 6 Year 2 7 Year 3 8 Year 4 9 Required rate of return ↑ Lulus Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $12,000,000 for the year. Lyssa Bickerson, staff analyst at Lulus, is preparing an analysis of the three projects under consideration by Caden Lulus, the company's owner. (Click the icon to view the data for the three projects.) Present Value of $1 table Read the requirements. B Project A с Project B Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table D Project C $ 6,000,000 $ 4,000,000 $8,000,000 8% $ 2,050,000 $ 1,100,000 $4,700,000 2,050,000 2,300,000 4,700,000 2,050,000 700,000 50,000 2,050,000 25,000 8% 8% Requirements 1. Because the company's cash is limited, Lulus thinks the payback method should be used to…arrow_forward
- Using a time line The financial manager at Starbuck Industries is considering an investment that requires an initial outlay of $22,000 and is expected to produce cash inflows of $1,000 at the end of year 1, $7,000 at the end of years 2 and 3, $12,000 at the end of year 4, $8,000 at the end of year 5, and $7,000 at the end of year 6. a. Select the time line option that represents the cash flows associated with Starbuck Industries' proposed investment. b. Which of the approaches-future value or present value-do financial managers rely on most often for decision making? Why? a. Which of the following time lines correctly represents the cash flows associated with Starbuck Industries' proposed investment? (Select the best answer below.) OA. $22,000 - $1,000 $7,000 $7,000-$12,000 - $8,000 - $7,000 + 5 0 3 4 6 O B. $22,000 $1,000 $7,000 $7,000 $12,000 $8,000 $7,000 + + 2 5 0 O C. $7,000 0 1 0 1 $8,000 $12,000 $7,000 $7,000 $1,000 $22,000 + + 2 3 4 5 O D. - $22,000 $1,000 $7,000 $7,000 $12,000…arrow_forwardQUESTION 2 You expect to receive $100 in year 1, $150 in year 2, and $200 in year 3 if you invest in Project XYZ. The project requires you to make an initial investment of $150 in year 0. You also expect to incur the following expenses: $80 in year 1, $80 in year 2, $100 in year 3. Suppose the current discount rate is 10% and remain the same. Suppoe all cash flows are incurred at the end of each year. What is the dynamic payback period? (round to 2nd decimal place)arrow_forwardHand writing solution pleasearrow_forward
- Problem 6 - Shirt Corporation is considering purchasing equipment that costs $60,000 and is expected to provide the following cash inflows over its five-year useful life: Year Cash Inflow 1 $18,000 2 $22,000 3 $24,000 4 $16,000 5 $ 9,000 Calculate the payback period for this investment.arrow_forwardA company is considering two projects. Project I Project II Initial investment $120,000 $120,000 Cash inflow Year 1 $40,000 $20,000 Cash inflow Year 2 $40,000 $20,000 Cash inflow Year 3 $40,000 $32,000 Cash inflow Year 4 $40,000 $48,000 Cash inflow Year 5 $40,000 $50,000 What is the payback period for Project I? a.5 years b.3.5 years c.2.5 years d.1 year e.3 yearsarrow_forwardWhich investment project Alfa or Beta competing for funds is the best business decision (use the concepts of NPV and BEP): Suppose that project Alfa is financed by investor’s own funds of 150 (expected return 15%) and by bank loan of 100 at the rate of 10%. And project Beta is financed by investor’s own funds of 100 (expected return 15%) and by bank loan of 150 at the rate of 10%.arrow_forward
- nabled: Exam 5 Saved Assume that an investment provides the following cash inflows over a three-year period: Year 1 Year 2 $ 5,000 5,000 Year 3 Total 7,000 $ 17,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables pro Assuming a discount rate of 12%, what is the present value of these cash inflows? Multiple Choice $13,034 О $13,434 $12,634 F3 x F4 C Search F5 F6 4 $ % 5 6 L DE F7 FB F9 F10 27 *OC 8 8- F11 *34 F12arrow_forwardNeed helparrow_forwardHaving difficulty with IRR calculations...attached the homework question. Thanks!arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning