Assignment task: Draw the cash flow diagram for the following situations:
a. A piece of equipment is purchased for $25,000. Its annual operating and maintenance expenses are $1,000 in year 1, increasing $500 per year over the next four years. The asset is sold for $2,000 at the end of the fifth year.
b. A new product is introduced at the cost of $500,000. Revenues for the first year are $100,000, growing by $10,000 per year for the next four years and then declining by $12,000 a year for the next five years. Expenses are $15,000 in the first year and are expected to increase by 3.2% per year over the lifetime of the product. The project has no salvage value.
c. A mine is opened at the cost of $15 million at the end of 2005 and generates daily revenues of $100,000 against daily costs of $40,000 for seven years. At the end of the life of the mine, a $1 million remediation fee is paid. Draw the cash flow diagram with a continuous flow of funds where appropriate.