question archive Las Cruces Industries has just introduced a new family of products to the market, hydraulic seals (in inch and metric sizes)
Las Cruces Industries has just introduced a new family of products to the market, hydraulic seals (in inch and metric sizes)
Subject:EconomicsPrice:3.87 Bought7
Las Cruces Industries has just introduced a new family of products to the market, hydraulic seals (in inch and metric sizes). For the next 10 years, the company expects sales of these products to increase according to the cash flow sequence $135,000 + 12,000 k, where k is in years, starting at the end of year 1, that is, at k=1 (no sales at all at k=0: it makes sense ? )
a) What is the amount of the cash flow in year 5?
b)What is the future worth of the entire cash flow series in year 10? Let i =11% per year.
c) What is the equivalent Uniform series (A) for the 10 years?
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Answer:
(a) Cash flow in year 5 ($) = 135,000 + (12,000 x 5) = 135,000 + 60,000 = 195,000
(b) Future Worth (FW) is computed as follows. Note that
FV Factor in year N = (1.11)10-N
| Year | Cash Flow ($) | FV Factor @11% | Compounded Cash Flow ($) |
| (k) | (A)=135,000+12,000k | (B) | (A) x (B) |
| 0 | 0 | 2.8394 | 0 |
| 1 | 1,47,000 | 2.5580 | 3,76,031 |
| 2 | 1,59,000 | 2.3045 | 3,66,422 |
| 3 | 1,71,000 | 2.0762 | 3,55,023 |
| 4 | 1,83,000 | 1.8704 | 3,42,286 |
| 5 | 1,95,000 | 1.6851 | 3,28,586 |
| 6 | 2,07,000 | 1.5181 | 3,14,241 |
| 7 | 2,19,000 | 1.3676 | 2,99,511 |
| 8 | 2,31,000 | 1.2321 | 2,84,615 |
| 9 | 2,43,000 | 1.1100 | 2,69,730 |
| 10 | 2,55,000 | 1.0000 | 2,55,000 |
| FW ($) = | 31,91,445 |
(c) Equivalent uniform series (A) = FW / FVIFA(11%,10) = $3,191,445 / 16.7220** = $190,853.07
**From FVIFA Factor table
