Homework Answers
a) Cash flow stream is provided in the figure below
b) The company will be spending the present value of the cash flow. This is found as
P = 5000(P/F, 8%, 2) + 5500(P/F, 8%, 3) + 6000(P/F, 8%, 4) + 6500(P/F, 8%, 5) + 6500(P/F, 8%, 6) + 6500(P/F, 8%, 7) + 6500(P/F, 8%, 8)
= 5000*0.8573 + 5500*0.7938 + 6000*0.7350 + 6500*0.6806 + 6500*0.6302 + 6500*0.5835 + 6500*0.5403
= $28,888 (approx)
.
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