Value of a mixed stream Harte Systems, Inc., a maker of electronic survillance equipment, is considering selling the rights to market its home security system to a well-known hardware chain. The proposed deal calls for the hardware chain to pay Harte $30,000 and $25,000 at the end of years 1 and 2 and to make annual year-end payments of $14.000 in years 3 through 9. A final payment to Harte of $15,000 would be due at the end of year 10 a. Select the time line that represents the cash flows involved in the offer. b. If Harte applies a required rate of return of 9% to them, what is the present value of this series of payments? C. A second company has offered Harte an immediate one-time payment of $100.000 for the rights to market the home security system. Which offer should Harte accept? a. Which of the following time lines represents the cash flows involved in the offer? (Select the best answer below.) O A 0 1 2 3 9 10 $30,000 $25,000 $14,000 $14,000 $15,000 O B. 0 1 2 3 10 $30,000 $25,000 - $14.000 - $14,000 $15.000 Oc. 0 1 2 3 10 -$30,000-$25,000-$14.000 $14,000-$15.000 OD 0 1 2 3 10 $15,000 $14,000 $25.000 $25,000 $30,000 b. The present value of the mixed stream of cash flows involved in the offer is $. (Round to the nearest dollar.) c. Which offer should Harte accept? (Select the best answer below.) O A. Series of payments offer OB. Immediate one-time payment offer Herr Mining Company plans to open a new coal mine. Developing the mine will cost $10 million right away, but cash flows of $4 million will arrive starting in one year and then continuing for the next four years (ie.. years 2 through 5). After that, no coal will remain, and Herr must spend $22 million to restore the land surrounding the mine to its original condition. a. Construct a timeline showing the cash flows starting at time zero and extending until time 6. b. What is the total undiscounted cash flow associated with this project over its 8-year life? Given this answer, do you think there is any way that the project can be financially attractive to Herr Mining? Why or why not? c. Calculate the present value of the project's cash flows, assuming the company's opportunity cost is 5%. What if the opportunity cost is 10%? Comment on what you find. a. Construct a timeline showing the cash flows starting at time zero and extending until time 6. (Select the best answer below.) OA 0 1 2 3 5 6 -$22 4 4 4 4 - 10 o B. 0 1 2 3 5 6 - $10 4 4 4 4 -22 Oc. 0 1 2 3 5 6 $10 4 4 4 4 -22 OD 0 1 2 3 5 6 - $10 4 4 4 22 b. What is the total undiscounted cash flow associated with this project over its 8-year life? Given this answer, do you think there is any way that the project can be financially attractive to Herr Mining? Why or why not? (Select the best answer below.) O A. The total undiscounted cash flow associated with this project over its 6-year life is - $12 million. This project would not be financially attractive to Herr Mining because based on the total undiscounted cash flow, they are spending more than they make. B. The total undiscounted cash flow associated with this project over its 6-year life is $20 million. This project would be financially attractive to Herr Mining because based on the total undiscounted cash flow, they are making money. OC. The total undiscounted cash flow associated with this project over its 6-year life is - $22 million. This project would not be financially attractive to Herr Mining because based on the total undiscounted cash flow, they are spending more than they make. D. The total undiscounted cash flow associated with this project over its 6-year life is - $10 million. This project would not be financially attractive to Herr Mining because based on the total undiscounted cash flow, they are spending more than they make. c. The present value of the project's cash flows is million (Round to two decimal places.) The present value of the project's cash flows is million. (Round to two decimal places.)
