(Question 6] (9 points): You are the chief engineer of a company and you are asked to investigate the introduction of a new product. The company will be initially spending money in manufacturing and marketing the product. Overall, the company will be investing $10,000 at the end of the first year. In the next year, the amount to be invested will drop by 7% from the previous year. The company will be investing in a similar pattern up to the end of seventh year. After year 7, no more investment is required. On the other hand, the product will be ready by the end of the fifth year, and will be sold in the market right away. The income from the product will be generated starting from the end of the sixth year. The expected income at the end of the sixth year is $15,000. The income for the next year will increase by a factor of 8%, and the income will keep on increasing by the same factor up to the end of the eighth year. From the ninth year, the income will start to decrease from the previous year income by a factor of 3%, and the pattern continues for the rest of the future years. The product will be available for sale in the market up to the end of the 12th year. Assume that the interest rate for the next 12 years will be fixed to 5% compounded annually. a) Draw the cash flow diagram of the new product. (2 points) b) Calculate the expected future worth of the project at the end of year 12. (7 points) (Question 6] (9 points): You are the chief engineer of a company and you are asked to investigate the introduction of a new product. The company will be initially spending money in manufacturing and marketing the product. Overall, the company will be investing $10,000 at the end of the first year. In the next year, the amount to be invested will drop by 7% from the previous year. The company will be investing in a similar pattern up to the end of seventh year. After year 7, no more investment is required. On the other hand, the product will be ready by the end of the fifth year, and will be sold in the market right away. The income from the product will be generated starting from the end of the sixth year. The expected income at the end of the sixth year is $15,000. The income for the next year will increase by a factor of 8%, and the income will keep on increasing by the same factor up to the end of the eighth year. From the ninth year, the income will start to decrease from the previous year income by a factor of 3%, and the pattern continues for the rest of the future years. The product will be available for sale in the market up to the end of the 12th year. Assume that the interest rate for the next 12 years will be fixed to 5% compounded annually. a) Draw the cash flow diagram of the new product. (2 points) b) Calculate the expected future worth of the project at the end of year 12. (7 points)
