Question

Chandler Corp. is expecting a new project to start producing cash flows, beginning at the end of this year. They expect cash flows to be as follows: $643,547 at the end of year 1, $678,214 at the end of year 2, 5775,908 at the end of year 3, $778,326 at the end of year 4, and $735,444 at the end of year 5. If they can reinvest these cash flows to earn a return of 8.2 percent, what is the future value of this cash flow stream at the end of five years? (Round to the nearest dollar.) A 54,227,118 $3,889,256 $5,214,690 0 54,809,112 Question 13 20 Points Franklin Foods announced that its sales were $1,233,450 this year. The company forecasts a growth rate of 16 percent for the foreseeable future. How long will it take the firm to produce earnings of $3 million (Round off to the nearest year.) A 6 years years 9 years 10 years 8 years D 10 years

Answer 1

a)	Amount in $
Year	Cashflows	[email protected]%	FV of cashflows	Remarks
1	643547	1.370595	882042.0972	Invested for 4 years
2	678214	1.266723	859109.5223	Invested for 3 years
3	775908	1.170724	908374.1174	Invested for 2 years
4	778326	1.082	842148.732	Invested for 1 years
5	735444	1	735444	Already at the end of 5th year
		Total FV	4227118

Therefore, Option A is the correct Answer

b)	Sales for the current year= $1,233,450 (S0)
	Growth rate= 16%
	Expected income $3,000,000
	To find= No of years to reach $3,000,000
	Sales of S1= $1,233,450*116%= $1,430,802
	Sales of S2= $1,430,802*116%= $ 1,659,730.32
	Sales of S3= $1,659,730.32*116%= $1,925,287.1712
	Sales of S4= $1,925,287.1712*116%= $2,233,333.11859
	Sales of S5= $2,233,333.11859*116%= $2,590,666.41756
	Sales of S6= $2,590,666.41756*116%= $3,005,173.04436
	Therefore, it will take approximately 6 years to reach $3 millions earnings
	Option A is the correct answer