It is necessary to evaluate the profitability of proposed improvements to a process prior to obtaining approval to important changes. For one such process, the capital investment (end of year 0) for the project is $250,000. There is no salvage value. In years 1 and 2, you expect to generate an after-tax revenue of $60,000/y from the project. In years 3-8, you expect to generate an after-tax revenue of $50,000/y. Assume that the investments and cash flows are single transactions occurring at the end of the year. Assume an effective annual interest rate of 9%.
a) Draw a discrete cash flow diagram for this project.
b) Draw a cumulative, discounted (to year 0) cash flow diagram for this project.
c) What is the future value of this project at the end of year 8?