please complete all parts and follow instructions! Draw and solve the Cash Flow
ID: 2731878 • Letter: P
Question
please complete all parts and follow instructions!
Draw and solve the Cash Flow Diagram for Future Value "F_11". This is a 10 year Cash Flow, and interest rate is a compounded 9%, but I want the Future Value at Year 11. $5000.00 is Invested Today for a piece of testing equipment $2000.00 is Earned as Annual Income from end of years 4-10 through use of this test equipment $400.00 is the Annual Maintenance Cost of the testing equipment for all 10 years Salvage Value at the end of the 10^th year is $1500.00 There is an Arithmetic Gradient Income from years 6-10 with a Base Annuity of $500.00 and an Annual Gradient G of +$50.00 There is a mortgage cost from years 1-10 with a starting amount of $1000, decreasing by $25 each year (years 2-10). What is the Future Value "F_11" of this Engineering Cash Flow Investment? Draw the CFDExplanation / Answer
It is a problem on future value determination of the cash flow of the project. Data of cash flows are observed for 10 yars. You require future value at the 11th year. It is assumed that future value is at the start of 11th year. the cash flows are as follows:
1. At time 0 there is a cash invrestment of $5,000. It is initial cash outflow required to buy testing equipment.
2. $2,000 eacxh year is earned from year 4 to year 10.
3. $400 is yearly maintenace from year 1 to year 10.These are the cash outflows.
4. Aftrer 10th year equipment will be sold to get $1,500. ii is cash iflow of 10th year.
5. Also there is arithmetic gradient income from 6th to 10th year. 6th year income is $500. It will increase $50 per year.It is cash inflow.
6. Finally there is mortgage cost of $1,000 in year 1. It will decrease by $25 in each year.
Based on these data, net cash flow of year 0 to 10 are calculated below:
Above cash flows are shown in the understated CFD:
--------------------------------------------------------------------------------------------------
Thus net cash flows for full project life is $625. It is without considering time factor. Here you have to ascertain future value of cash flows. So all cash flows are converted to equivalent value at the begining of 11th year. It is possible by compounding cash flows using 9% rate of interest. Calculations are shown below.
Above table indicates that future value of net cash flows at the end of 11th year is -$8,964. It indicates that money should not be invested in this project
Statement showing net cash flowsof the project Year Initial Constant Annual Salvage Gradient Mortgage Net cash flow Ivestment Income Mainten value Income cost ance (1) (2) (3) (4) (5) (6) (7) 2+3+4+5+6+7=8 0 -5,000 -5,000 1 -400 -1,000 -1,400 2 -400 -975 -1,375 3 -400 -950 -1,350 4 2,000 -400 -925 675 5 2,000 -400 -900 700 6 2,000 -400 500 -875 1,225 7 2,000 -400 550 -850 1,300 8 2,000 -400 600 -825 1,375 9 2,000 -400 650 -800 1,450 10 2,000 -400 1,500 700 -775 3,025 Total -5,000 14,000 -4,000 1,500 3,000 -8,875 625Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.