This preview shows page 1. Sign up to view the full content.
Unformatted text preview: an investment that requires an initial outlay of $25,000 and is expected to result
in cash inflows of $3,000 at the end of year 1, $6,000 at the end of years 2 and
3, $10,000 at the end of year 4, $8,000 at the end of year 5, and $7,000 at the
end of year 6.
a. Draw and label a time line depicting the cash flows associated with Starbuck
Industries’ proposed investment.
b. Use arrows to demonstrate, on the time line in part a, how compounding to
find future value can be used to measure all cash flows at the end of year 6.
c. Use arrows to demonstrate, on the time line in part b, how discounting to
find present value can be used to measure all cash flows at time zero.
d. Which of the approaches—future value or present value—do financial managers rely on most often for decision making? Why? LG2 4–2 Future value calculation Without referring to tables or to the preprogrammed
function on your financial calculator, use the basic formula for future value
along with the given interest rate, i, and the number of periods, n, to calculate
the future value interest factor in each of the cases shown in the following ta...
View Full Document