i've been reading about cash flow diagrams, disbursements and receipts. In the engineering economics textbook i'm...

i've been reading about cash flow diagrams, disbursements and receipts. In the engineering economics textbook i'm reading, its says " since earlier cash flows are more valuable than later cash flows, we cannot just add them together. Instead, each alternative is resolved into a set of cash flows".

1. can you try to help me understand the basic ideas of cash flows and cash flow diagrams? maybe provide a few basic examples to solidify the concept

2. please explain why we cannot just add them too

Expert Solution

Earlier cash flows are more valuable than later cash flows, we cannot just add them together.

Why earlier cash flows are more valuable than later cash flows?

Earlier cash flows are more valuable because of the Concept of the time value of money.

Simple Logical Question

I just want to ask a question to you, Do you think the Value of money is the same after 100 years ???

Your answer is No.

For Example, If you pay me $ 10000 Today, and I will pay back to you $ 10000 After 100 years. Are you ready with this deal? No because of Value of money will increase due to Inflation and many other economic factors.

Concept of Time value
Suppose you will invest $ 5000 in Indian Bank account with 8% Interest rate per annum then what is the value you will be received after 5 years?
Answer
Value at beginning invested	$ 5,000
Interest credited in account for the first year (5000*8%)	$ 400
Value at the end of the First year	$ 5,400
Interest credited in account for the second year (5400*8%)	$ 432
Value at the end of the second year	$ 5,832
Interest credited in account for the third year (5832*8%)	$ 467
Value at the end of the third year	$ 6,299
Interest credited in account for the fourth year (6299*8%)	$ 504
Value at end of the fourth year	$ 6,802
Interest credited in account for the Fifth year (6802*8%)	$ 544
Value at end of the Fifth year	$ 7,347

You will be received $ 7,247 after 5 years.
Now coming back to my question, You should never ready to received only $ 5000 after 5 years. Why ?? Answer is the time value of money.

Why we cannot just add them together?

Now suppose you will buy land today $ 100000 and further buy land $ 100000 after 50 years. Then you will now that land purchased after 50 years is lesser compared to older land in terms of quantity. It may be possible that the value of older land after 50 years maybe $ 2,000,000. Actually value of land available after 50 year is ( 2,000,000 old + 100,000 new $ 2,100,000. How can you simply add both amount like $100000+ $ 100000 = $200000 ?

ekkarill92 answered 9 months ago

The following table consists of cash flow data for a selected ten days. Day Receipts Disbursements...

The following table consists of cash flow data for a selected ten days. Day Receipts Disbursements 1 60 40 2 70 60 3 90 60 4 60 100 5 90 70 6 50 30 7 110 80 8 130 140 9 80 100 10 90 110 A. Calculate the variance of net daily cash flows. B. Assuming a lower limit of $300, a transaction cost of $15, and an annual interest rate of 8 percent, what is the upper limit...

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements...

Kayak Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash disbursements (excluding cash disbursements for loan principal and interest payments) for the first three months of next year. Cash Receipts Cash Disbursements January $ 517,000 $ 459,400 February 405,000 347,400 March 455,000 533,000 According to a credit agreement with the company’s bank, Kayak promises to have a minimum cash balance of $40,000 at each month-end. In return, the bank has agreed that the company can...

For August 2019, Ravi River Rafting will have cash receipts of RM94,000 and cash disbursements of...

For August 2019, Ravi River Rafting will have cash receipts of RM94,000 and cash disbursements of RM75,000. If its beginning cash is RM2,000 and its desired reserve is RM5,000, will it ending cash be in excess or shortfall, and by how much? Select one: a. Shortfall of RM-11,000 b. Shortfall of RM-6,000 c. Excess of RM8,000 d. Excess of RM6,000 The annual dividend for Sapura Kenchana Corporation was RM2.20 per share and the firm’s required rate of return is 15%....

q1 : The cash budget reflects expected cash receipts and cash disbursements from all sources. all...

q1 : The cash budget reflects expected cash receipts and cash disbursements from all sources. all revenues and all expenses for a period. all the items that appear on a budgeted income statement. all the items that appear on a budgeted balance sheet. q2 :A major element in budgetary control is the comparison of actual results with planned objectives. the valuation of inventories. the preparation of long-term plans. approval of the budget by the stockholders. q3 :A static budget should...

The ABC Company has made the following monthly estimates of cash receipts and cash disbursements when...

The ABC Company has made the following monthly estimates of cash receipts and cash disbursements when preparing cash budgets for the next twelve months. ABC has beginning cash on hand of $25,000 and wants to maintain this minimum cash level throughout the next year. Cash Cash Month Receipts Disbursements January $100,000 $110,000 February $90,000 $110,000 March $95,000 $115,000 April $100,000 $150,000 May $130,000 $180,000 June $160,000 $180,000 July $200,000 $190,000 August $245,000 $180,000 September $245,000 $150,000 October $180,000 $120,000 November...

Alpine Products Company has made the following monthly estimates of cash receipts and cash disbursements when...

Alpine Products Company has made the following monthly estimates of cash receipts and cash disbursements when preparing cash budgets for the next twelve months. Alpine Products has beginning cash on hand of $10,000 and wants to maintain this minimum cash level throughout the next year Cash Cash Month Receipts Disbursements January $100,000 $100,000 February $90,000 $110,000 March $80,000 $110,000 April $100,000 $150,000 May $120,000 $180,000 June $160,000 $180,000 July $200,000 $180,000 August $250,000 $180,000 September $250,000 $150,000 October $200,000 $110,000...

text Prepare Cash Budget For 3 Months Brewster Corporation expects the following cash receipts and disbursements...

text Prepare Cash Budget For 3 Months Brewster Corporation expects the following cash receipts and disbursements during the first quarter of 2016 (receipts exclude new borrowings and disbursements exclude interest payments on borrowings since January 1, 2016) January February March Cash receipts $290,000 $310,000 $280,000 Cash disbursements 270,000 350,000 290,000 The expected cash balance at January 1, 2016, is $72,000. Brewster wants to maintain a cash balance at the end of each month of at least $70,000. Short-term borrowings at...

1. Karl Corp. is preparing a schedule of cash receipts and disbursements for Year 4. Which...

1. Karl Corp. is preparing a schedule of cash receipts and disbursements for Year 4. Which of the following items should be included? I.Borrowing funds from a bank on a note payable taken out in August Year 4 and agreeing co pay the principal and interest in July Year 5 II.Dividends declared in October Year 4 co be paid in January Year 5 co shareholders of record as of December Year 4 (A)I only, (B)II only ,(C)Both I and II,...

We are reading about cash flow this week. Can anyone explain the type of questions about...

We are reading about cash flow this week. Can anyone explain the type of questions about future cash flows investors and creditors would attempt to answer with information in the income statement? If someone has already answered this question correctly, either provide a fresh and/or different perspective. Please do not post the same response.

Kids ’n Caboodle, a children’s clothing store, had the following cash receipts and disbursements for its...

Kids ’n Caboodle, a children’s clothing store, had the following cash receipts and disbursements for its first year of operations: Receipts: Cash sales $155,000 Loan proceeds ___2_1_,_0_0_0_ Total receipts ____1__7__6__,__0__0__0__ Disbursements Merchandise purchases (all sold this year) 84,000 Wages 33,000 Rent and lease payments 22,000 Other operating outlays 7,900 Purchase equipment ___1_0_,_5_0_0_ Total disbursements __1_5_7_,_4_0_0_ Increase in Cash Balance $______1__8__,__6__0__0__ The store has no accounts receivable (it accepts only cash or bank cards for payment). At year-end, an employee had...

Question