Question
A) Ms. Diana wants to take off next three years of work to travel around the world. She estimates her average annual cash need is
A) Ms. Diana wants to take off next three years of work to travel around the world. She estimates her average annual cash need is $15,000. If she needs more funds, she will arrange from alternative ways i.e. taking loans or doing some odd jobs etc. Ms. Diana believes that she can invest her savings at 10% until she depletes her funds. You are required to find out how much she should invest now to fund her future cash flow if she is able invests at 10% annually OR what amount she has to invest if she only earns 7% annually. The relevant factors from table you will need for this calculation are given below. a) Future value interest factor for a one-dollar annuity compounded from the table at 10% is 3.3100 and at 7% is 3.2149 on period#3 b) Present value interest factor for a one-dollar annuity discounted from the table at 10% is 2.4869 and at 7% is 2.6243 on period#3 B) What are the popular methods of capital budgeting? What are the advantages and disadvantages of each?
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