A corporation plans to invest in a small project which

Question

Q1. 1-1) Find the correct dollar values for (1) and (2) in the overdraft profile graph.

1-2) Plot a cash flow diagram for the costs and the payments received each month and calculate the sum of the present values of the cash flow. The discount rate is 2% per month. The equation to convert future values to present values is:

P = F_n/(1+i)ⁿ

Where, F is a future value after n periods at a discount rate of i.

Q2. The table below represents a contractor's overdraft requirements for a three-month project. Retainage is 10%, markup is 10%, and interest is 1% per month. The client is billed at the end of the month. Payment is received at the end of the next month. Retainage will be dropped out at last month of the construction period, and the accumulated retainage for the first two months will be paid to the contractor with the last payment. (Note: all calculated numbers should be rounded to integer numbers.)

	Month
	1	2	3	4	5
Overdraft	50,000	120,500	82,205	13,727	(10,336)
Interest	500	1,205	822	137	-
Total financed	50,500	212,705	83,027	13,864	(10,336)

Complete the overdraft table provided below.

	1		2		3		4		5
Expenditure
Markup (10%)
Total billed
Retainage (10%)
Payment received
Total cost to date
Total amount billed to date
Total paid to date
Overdraft
Interest (1%)
Totam amount financed

Q3. A corporation plans to invest in a small project which costs a one-time expenditure of $600,000 at Year 1. It intends to finance this project by borrowing from a local bank which requires the origination fee of $50,000. Compounded interest payments are made annually at a nominal interest rate of 7%/year with the repayment of the principal at the end of Year 5. The bank compounds the financial charges monthly. The MARR of the corporation is 15%.

3-1) Calculate the total present value of the cash inflows and outflows.

3-2) Based on the result from 3-1), find the minimum annual return over the five years that the corporation should generate to make the project viable economically (i.e., total PV = 0 after considering the annual return). (Note: use the discount factor table at the last page.)