Question

In: Finance

A contractor was doing the 10-year planning for a construction business, which uses a MARR of...

A contractor was doing the 10-year planning for a construction business, which uses a MARR of 15% per year. The contractor anticipates income of $150,000 per year for years 1-5, and income of $200,000 per year for years 6-10.

  1. Draw the cash flow diagram.
  2. What is the future value (in year 10) of the income?

Solutions

Expert Solution

Part A:

Part B:

FV = Sum [ CF * FVF(r%, n ]

FVF(r%, n ) = (1+r)^n

r = MARR

n = No. of Years.

Year Bal Yrs CF FVF@15% FV of CFs
1 9 $ 1,50,000.00     3.5179 $    5,27,681.44
2 8 $ 1,50,000.00     3.0590 $    4,58,853.43
3 7 $ 1,50,000.00     2.6600 $    3,99,002.98
4 6 $ 1,50,000.00     2.3131 $    3,46,959.11
5 5 $ 1,50,000.00     2.0114 $    3,01,703.58
6 4 $ 2,00,000.00     1.7490 $    3,49,801.25
7 3 $ 2,00,000.00     1.5209 $    3,04,175.00
8 2 $ 2,00,000.00     1.3225 $    2,64,500.00
9 1 $ 2,00,000.00     1.1500 $    2,30,000.00
10 0 $ 2,00,000.00     1.0000 $    2,00,000.00
FV of Net Income $ 33,82,676.80

Pls do rate, if the answer is correct and Comment, if any further assistance is required


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