Some Suggestions for Al Ferris Investment

# Some Suggestions for Al Ferris Investment - MINUS New...

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Al's initial stake is \$60,000. He wants to invest so as to have the largest possible amount at the end of five years. Al's investment opportunities: Available at Per Dollar Beginning Years to Return at Type of Years Mature Maturity A 1,2,3,4,5 2 \$1.40 B 1,2,3,4,5 3 \$1.70 C 2 4 \$1.90 D 5 1 \$1.30 Note that while Al could invest in A at the beginning of any year, he should not invest in A afte Similarly, he should not invest in B in years 4 or 5. Possible layout Investment opportunities in columns Cash balance for each year in rows Is this situation reminiscent of the Everglade Golden Years Company Cash Flow problem? We

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er year 4. Why? eb Mercantile's leasing problem?
Year t-1 Year t Cash balance CB(t-1) CBt Cash inflows PLUS Maturing investments Cash outflows MINUS New investments Net cash inflow Year t-1 Year t Cash balance CB(t-1) CBt Cash inflows PLUS Maturing investments Cash outflows

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Unformatted text preview: MINUS New investments Net cash inflow CBt = cash balance after investments in year t PRECISE TIMING (DOESN'T WORK) This layout reflects precise timing. Investments mature at end of year. New investments made at beginning of year. But the cash flows span two years - year (t-1) and year t -which is awkward for our spreadsheet model, since we want one row for each year. The simple modification shown below fixes the problem. WORKABLE TIMING This layout reflects a convenient way to count the cash inflows and outflows in one year. Simply count cash inflows from maturing investments at the start of the year following their maturity. For example, A1 returns come on 12/31 of year 2. Simply count them on 1/1 of year 3 - in time to invest them in A3 or B3 if desired....
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Some Suggestions for Al Ferris Investment - MINUS New...

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