Barnaby PLC is considering starting a new branch of their business in Northern Ireland that requires an initial outlay of £280,000 and is expected to produce cash inflows of £80,000 at the end of years 1, 2, and 3; £70,000 at the end of years 4 and 5; and £90,000 at the end of year 6.

a. Draw and label a timeline depicting the cash flows associated with Barnaby’s proposed investment.

b. Use arrows to demonstrate, on the timeline 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 timeline in part a, how discounting to find present value can be used to measure all cash flows at the beginning of the period (time zero).

d. Which of the approaches—future value or present value—do you think financial managers rely on most often for decision making?