Relevant cash flow and timeline depiction For each of the following projects, determine the relevant cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $118,000 and will generate annual operating cash inflows of $24,000 for the next 16 years. In each of the 16 years, maintenance of the project will require a $4,900 cash outflow. b. A new machine with an installed cost of $89,000. Sale of the old machine will yield $34,000 after taxes. Operating cash inflows generated by the replacement will exceed the operating cash inflows of the old machine by $21,000 in each year of a 6-year period. At the end of year 6, liquidation of the new machine will yield $24,000 after taxes, which is $8,000 greater than the after-tax proceeds expected from the old machine had it been retained and liquidated at the end of year 6. c. An asset that requires an initial investment of $2 million and will yield annual operating cash inflows of $296,000 for each of the next 14 years. Operating cash outlays will be $16,000 for each year except year 5, when an overhaul requiring an additional cash outlay of $495,000 will be required. The asset's liquidation value at the end of year 14 is expected to be zero. CA. This is a conventional cash flow pattern, where the subsequent cash inflows vary, which is referred to as a mixed stream. B. Year 0 1 2 3 4 5 6 Cash flow - $55,000 $21,000 $21,000 $21,000 $21,000 $21,000 $21,000 CYC. At year 0, the initial investment will be - $89,000 + $34,000 = - $55,000. For each of the years 1 thru 5, the net cash flow will be $21,000. At year 6, the net cash flow will be $21,000+ $24,000 - $16,000 = $29,000. LYD. Year 0 1 2 3 4 5 Cash flow - $55,000 $21,000 $21,000 $21,000 $21,000 $21,000 $29,000 c. An asset that requires an initial investment of $2 million and will yield annual operating cash inflows of $296,000 for each of the next 14 years. Operating cash outlays will be $16,000 for each year except year 5, when an overhaul requiring an additional cash outlay of $495,000 will be required. The asset's liquidation value at the end of year 14 is expected to be zero. (Select all the choices that apply.) I A. This is a nonconventional cash flow pattern, with several cash flow series of equal size, which is referred to as an embedded annuity. O B. At year 0, the initial investment will be - $2,000,000. For each of the years 1 thru 4 and 6 thru 14, the net cash flow will be $296,000 - $16,000 = $280,000. At year 5, the net cash flow will be $296,000 - $495,000 = - $199,000. I C. At year 0, the initial investment will be - $2,000,000. For each of the years 1 thru 4 and 6 thru 14, the net cash flow will be $296,000. At year 5, the net cash flow will be $296,000 - $495,000 = - $199,000. ID. Year 0 1 B 4 5 6 13 14 $280,000 $280,000 - $199,000 $280,000 $280,000 $280,000 Cash flow - $2 million
