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year 5, and $7,000 at the end of year 6. a. Draw and label a time line
depicting the cash flows associated with Starbuck Industries’
proposed investment. b. Use arrows to demonstrate, on the time line
in part a, how compounding to find future value can be used to
measure all cash flows at the end of year 6. c. Use arrows to
demonstrate, on the time line in part b, how discounting to find
present value can be used to measure all cash flows at time zero. d.
Which of the approaches—future value or present value—do financial
managers rely on most often for decision making? Why? P5–4 Future
values For each of the cases shown in the following table, calculate
the future value of the single cash flow deposited today at the end of
the deposit period if the interest is compounded annually at the rate
specified. Case Single cash flow Interest rate Deposit period (years) A
$ 200 5% 20 B 4,500 8 7 C 10,000 9 10 D 25,000 10 12 E 37,000
11 5 F 40,000 12 9 P5–5 Time value You have $1,500 to invest today
at 7% interest compounded annually. a. Find how much you will have
accumulated in the account at the end of (1) 3 years, (2) 6 years, and
(3) 9 years. b. Use your findings in part a to calculate the amount of
interest earned in (1) the first 3 years (years 1 to 3), (2) the second 3
years (years 4 to 6), and (3) the third 3 years (years 7 to 9). c.
Compare and contrast your findings in part b. Explain why the
amount of interest earned increases in each succeeding 3-year period.
P5–8 Time value Misty needs to have $15,000 at the end of 5 years to
fulfill her goal of purchasing a small sailboat. She is willing to invest
a lump sum today and leave the money untouched for 5 years until it
grows to $15,000, but she wonders what sort of investment return she
will need to earn to reach her goal. Use your calculator or spreadsheet
to figure out the approximate annually compounded rate of return
needed in each of these cases: a. Misty can invest $10,200 today. b.
Misty can invest $8,150 today. c. Misty can invest $7,150 today. P5–
10 Present value calculation Without referring to the preprogrammed
function on your financial calculator, use the basic formula for present
value, along with the given opportunity cost, r, and the number of
periods, n, to calculate the present value of $1 in each of the cases
shown in the following table. Case Opportunity cost, r Number of
periods, n A 2% 4 B 10 2 C 5 3 D 13 2 P5–17 Cash flow investment
decision Tom Alexander has an opportunity to purchase any of the