Computing cash flows

In the examples presented so far, we have selected the least cost alternative to meet a specification or requirement or the saving have been obtained in a short period of time. There are other situations where the alternative have different consequences that continue for extended period of time.in these circumtances, we do not add up the various consequences; instead, describe aech alternative as cash receipts or disburshment at different points in  time. In this way, each alternative is revolve in to a cash flow.  This is the illustrated:

The manager has decide to purchase a new $30.000 mixing machine. The machine may be paid for by one of two ways:

1.       Pay the full price now minus a 3% discount.

2.       Pay $5000 now; at the end of one year, pay $8000; at the end of four subsequent years, pay $6000 per year.

List the alternatives in the form of a table of cash flows.

Solution:

In this problem, the two alternative represent different ways to pay for the mixing machine. While the firs plan represent a lump sum of $ 29.100 now, the second one call for payments continuing until the end of the fifth year. The problem is to convert an alternative in to cash receipts or disbursements and show the timing of each receipt or disbursement. The result called a cash flow table  or, more simply, a cash flow.

The cash flows for both the alternatives in this problem are very simple. The cash flo table, with disbursements given negative signs, is as follows:

End of year	Pay in full now	Pay over 5 years
0	-$29.100	-$5000
1	0	-8000
2	0	-6000
3	0	-6000
4	0	-6000
5	0	-6000