Question

A company is expanding its operations. It costs $10,000 today to invest in a software upgrade...

A company is expanding its operations. It costs $10,000 today to invest in a software upgrade to expand sales, and it produces the following incremental cash flows over time: negative $500 at the end of Year 1; $7,000 at the end of Year 2; $0 at the end of Year 3, $9,000 at time 4, and $450 at time 5. Using interest rate of 4%, answer the questions:

a. What is the present value of the cash flow stream?

b. What is the future value of the cash flow stream?

If you are using NPV function in Excel, please remember that it does not count Cash Flow 0, which you have to add to the result separately. In our case CFo is a cost, so use -10,000 (negative CFo).

Homework Answers

Answer #2

The initial cost for year one is -10,000 subsequent to which the cash flow have been mentioned from year 1-5. The present value is calculated by the Time value of money formula where PV = FV/(1+r)^n , r= 0.04, n = 1 to 4 , FV = cash flow for each period

The formula is entered in the excel table has shown above

The cumulative PV's are calculate and then after deducting the initial investment the NPV is calculated.

The present value of the cash flow is 4054

The FV = PV * (1+r)^n where PV = 4054, r= 0.04, n = 5  

FV = 4932.59

answered by: anonymous
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
PC Shopping Network may upgrade its modem pool. It last upgraded 3 years ago, when it...
PC Shopping Network may upgrade its modem pool. It last upgraded 3 years ago, when it spent $101 million on equipment with an assumed life of 6 years and an assumed salvage value of $14 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $83 million. A new modem pool can be installed today for $158 million. This will have a 3-year life, and will be depreciated to zero using straight-line depreciation....
You have a choice of accepting either of two 5-year cash flow streams or lump-sum amounts...
You have a choice of accepting either of two 5-year cash flow streams or lump-sum amounts given End of year Cash flow stream Alternative I Alternative II 1 $ 7,000 $ 11,000 2 7,000 9,000 3 7,000 7,000 4 7,000 5,000 5 7,000 3,000 Lump-sum amount At time zero (t = 0) $28,250 $28,000 Assuming 10 per cent required rate of return, which alternative (I or II) and in which form (Cash flow or lump-sum) would you prefer and why?
The XYZ Company loaned some money to one of its vendors so the vendor could upgrade...
The XYZ Company loaned some money to one of its vendors so the vendor could upgrade its supply chain. In return, the vendor has agreed to pay XYZ $59107 a year, with the first payment occurring at the end of year 6.The vendor will make a total of 13 payments to XYZ (one per year). What is the annual worth of this loan? Use a MARR of 4% to make the calculation. Hint: Count the years carefully. Calculate the annual...
Calculating 'cash flows at the end' Today (Year zero), a company plans to invest in a...
Calculating 'cash flows at the end' Today (Year zero), a company plans to invest in a machine costing $450,000 and operate it for five years at which time it will be sold. For internal management accounting the company depreciates the machine over ten years. Tax rules state the machine is depreciated to zero over a twenty-year life. The company has already agreed to sell the machine in five years’ time to an unrelated firm for $80,000. The company must also...
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it...
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $90 million on equipment with an assumed life of 5 years and an assumed salvage value of $17 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $80 million. A new modem pool can be installed today for $150 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation....
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it...
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $135 million on equipment with an assumed life of 5 years and an assumed salvage value of $30 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $100 million. A new modem pool can be installed today for $180 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation....
There are two projects that the company is considering: Project A costs -10,000 to implement today,...
There are two projects that the company is considering: Project A costs -10,000 to implement today, and it brings subsequent cash flows of 5,000 at the end of year 1; 1,500 at the end of year 2; 2,100 at the end of year 3; and 3,400 at the end of year 4. Project B's initial cost is -10,000, and subsequent cash flows are 2,500 per year for five (5) years. WACC is 6% for both projects. a. Calculate NPV and...
A father wants to invest a sum of money (P) into an account today (at time...
A father wants to invest a sum of money (P) into an account today (at time 0), on his son’s birth, so that the son can withdraw 10,000 TL at the start of each of 18th, 19th, 20th, and 21st year birthday to cover his college expenses for 4 years. How much should the father invest into the bank now if the bank pays 12% per year? (Draw the cash flow and show all solutions). 30,375 TL                  b) 5,425 TL               ...
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it...
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $120 million on equipment with an assumed life of 5 years and an assumed salvage value of $13 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $80 million. A new modem pool can be installed today for $150 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation....
A Meat Processing company asked its lead process engineer to evaluate two different types of conveyors...
A Meat Processing company asked its lead process engineer to evaluate two different types of conveyors for the beef cutting line. Type A has an initial cost of $70,000 and a life of 4 years. Type B has an initial cost of $95,000 and a life expectancy of 6 years. The annual operating cost (AOC) for type A is expected to be $9,000, while AOC for type B is expected to be $7,000. If the salvage values are $5000 and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT