Show a detailed working and no use of excel. show Cash flow diagram. Morris Glas
ID: 2479405 • Letter: S
Question
Show a detailed working and no use of excel. show Cash flow diagram.
Morris Glass Company has decided to invest funds for the next 5 years so that development of “smart” glass is well funded in the future. This type of new-technology glass uses electrochrome coating to allow rapid adjustment to sun and dark in building glass, as well as assisting with internal heating and cooling cost reduction. The fi nancial plan is to invest first, allow appreciation to occur, and then use the available funds in the future. All cash flow estimates are in $1000 units, and the interest rate expectation is 9% per year.
Years 1 through 5: Invest $7000 in year 1, decreasing by $1000 per year through
year 5 Years 6 through 10: No new investment and no withdrawals.
Years 11 through 15: Withdraw $20,000 in year 11, decreasing 20% per year through year 15.
Determine if the anticipated withdrawals will be covered by the investment and appreciation plans. If the withdrawal series is over- or underfunded, what is the exact amount available in year 11, provided all other estimates remain the same?
Explanation / Answer
Given that Withdraw $20,000 in year 11, decreasing 20% per year through year 15. But the 20% is of the year 11th , or 20% of teh previous withdrawal has not been mentioned hence I have considered it on the both ways.
1) Plan 1: Where I assumed reduction of 20% in withrawal of the previous year.
2) Plan 2: Where I assumed reduction of 20% in withrawal of the 11th year. i.e.reduction of $4,000.
Plan 1: Reduction of 20% in withrawal of the previous year.
Anticipated withdrawals will NOT be covered by the investment and appreciation plans
2) Plan 2: reduction of 20% in withrawal of the 11th year. i.e.reduction of $4,000.
Notes:
From both the plans, balance at start of year 11 was $47,623.10.
It was considered that all yearly investments & withdrawals are made at end of the respective year.
PLAN 1 Yr. Int. Factor CF($) Balance0 Balance 0xi Balance1($) a b c d e=(d x b) f=(e x b) 1 1.09 7000 7000.00 2 1.09 6000 7000.00 7630.00 13630.00 3 1.09 5000 13630.00 14856.70 19856.70 4 1.09 4000 19856.70 21643.80 25643.80 5 1.09 3000 25643.80 27951.75 30951.75 6 1.09 0.00 30951.75 33737.40 33737.40 7 1.09 33737.40 36773.77 36773.77 8 1.09 36773.77 40083.41 40083.41 9 1.09 40083.41 43690.91 43690.91 10 1.09 43690.91 47623.10 47623.10 11 1.09 -20000 47623.10 51909.18 31909.18 12 1.09 -16000 31909.18 34781.00 18781.00 13 1.09 -12800 18781.00 20471.29 7671.29 14 1.09 -10240 7671.29 8361.71 -1878.29 15 1.09 -8192 -1878.29 -2047.34 -10239.34