Spreadsheet Exercise: Chapter 5 At the end of 2019, Uma Corporation is considering a major long-term project in an effort to remain competitive in its industry. The production and sales departments have determined the potential annual cash flow savings that could accrue to the firm if it acts soon. Specifically, they estimate that a mixed stream of future cash flow savings will occur at the end of the years 2020 through 2025 . The years 2026 through 2030 will see consecutive $90,0000 cash flow savings at the end of each year. The firm estimates that its discount rate over the first 6 years will be 7%. The expected discount rate over the years 2026 through 2030 will be 11%. The project managers will find the project acceptable if it results in present cash flow savings of at least $860,000. The following cash flow savings data are supplied to the finance department for analysis. Important: Do not use cell references to cells in rows 7 to 17 . For all required answers, use cell references to values starting in row 29) \begin{tabular}{|c|r|r|r|r|r|} \hline & & & & \\ \hline End of year & Cashflowsavings & & & \\ \hline 2020 & $110,000 & & & \\ \hline 2021 & 120,000 & & & \\ \hline 2022 & 130,000 & & & \\ \hline 2023 & 150,000 & & & \\ \hline 2024 & 160,000 & & & \\ \hline 2025 & 150,000 & & & \\ \hline 2026 & 90,000 & & & \\ \hline 2027 & 90,000 & & & \\ \hline 2028 & 90,000 & & & \\ \hline 2029 & 90,000 & & & \\ \hline 2030 & 90,000 & & & & \\ \hline & & & & \\ \hline \end{tabular} To Do Create spreadsheets similar to Table 5.2 , and then answer the following questions. a. Determine the present value of the future cash flow savings expected to be generated by this project. b. Based solely on the one criterion set by management, should the firm undertake this specific project? Explain. c. What is the "interest rate risk," and how might it influence the recommendation made in part b? Explain. Solution a. Determine the value of the future cash flow savings expected to be generated by this project. Discount rate for years 20202025 Discount rate for years 20262030 b. Based solely on the one criterion set by management, should the firm undertake this specific project? Explain. Based solely on the criteria set by management, the firm of the expected future savings total c. What is the "interest rate risk," and how might it influence the recommendation made in part b? Explain. The concept of interest-rate risk states that changes in the interest rates may adversely affect the value of an investor's securities portfolio. While this is not a securities problem, the relationship between the change in rates and the subsequent change in the value of an asset hold true. If the the interest rates were to rise just 1 percent, the present value of the expected savings would fall below the Is the above statement true or false