Question

please show cash flow diagram

Silastic-LC-50 is a liquid silicone rubber designed to provide high clarity, superior mechanical properties, and short cycle time for high speed manufacturers. One high-volume manufacturer used it to achieve smooth release from molds. The company’s projected growth would result in silicon costs of $26,000 next year and costs increasing by $2000 per year through year 5. The interest rate is 10% per year. (a) What is the present worth of these costs using tabulated factors? (b) How is this problem solved using a spreadsheet?

Answer 1

Cash flow diagram (values in $):

(a)

PW of costs ($) = 26,000 x P/F(10%, 1) + 28,000 x P/F(10%, 2) + 30,000 x P/F(10%, 3) + 32,000 x P/F(10%, 4) + 34,000 x P/F(10%, 5)

= 26,000 x 0.9091 + 28,000 x 0.8264 + 30,000 x 0.7513 + 32,000 x 0.6830 + 34,000 x 0.6209

= 23,636.6 + 23,139.2 + 22,539 + 21,856 + 21,110.6

= 112,281.4

(b)

Year	Cost ($)	PV Factor @10%	Discounted Cost ($)
1	26,000	0.9091	23,636
2	28,000	0.8264	23,140
3	30,000	0.7513	22,539
4	32,000	0.6830	21,856
5	34,000	0.6209	21,111
		PW of Costs ($) =	112,284.1

(Slight difference due to rounding off)