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Example shrell industries a cabinet manufacturer

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Unformatted text preview: 1 $11,500 2 14,000 3 12,900 4 16,000 5 18,000 150 PART 2 Important Financial Concepts If Shrell expects to earn 8% on its investments, how much will it accumulate by the end of year 5 if it immediately invests these cash flows when they are received? This situation is depicted on the following time time: $15,640.00 17,640.00 15,041.40 17,280.00 18,000.00 $83,601.40 Future Value Time line for future value of a mixed stream (end-of-year cash flows, compounded at 8% to the end of year 5) $11,500 $14,000 1 2 0 $12,900 $16,000 $18,000 3 4 5 End of Year Table Use To solve this problem, we determine the future value of each cash flow compounded at 8% for the appropriate number of years. Note that the first cash flow of $11,500, received at the end of year 1, will earn interest for 4 years (end of year 1 through end of year 5); the second cash flow of $14,000, received at the end of year 2, will earn interest for 3 years (end of year 2 through end of year 5); and so on. The sum of the individual end-of-year-5 future values is the future value of the mixed cash flow stream. The future value interest factors required are those shown in Table A–1. Table 4.3 presents the calculations...
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