Micawber Chemical is considering opening a new product line. The line will require an up-front expenditure of $200,000; it is expected to yield cash revenues of $15,000 at the end of the first year and $80,000 at the end of each of years 2, 3, and 4. Sales of the product are expected to yield only $50,000 at the end of year 5, after which point it will be retired.

a.Draw the financial timeline depicting the predicted cash flows for this investment. Be sure to label both cash inflows and cash outflows.

b.Draw arrows on your timeline to show how compounding could be used to find the future value of the investment at the end of year 5.

c. Now, draw a second set of arrows on the same timeline to show how discounting could be used to find the present value (at time 0) of each predicted cash flow.

d. Of the two approaches in items b. and c., which do you think would be most useful to help Micawber decide whether to pursue this investment? Why?