Chapter $9$ Case Study$-$Leqiatical Services Development Plan

Elevation Mining has seen stealy growth over the past several rears and demand is expected to rise in the coming wars. Management knows that they must have competitive solutions to transport their commodities from mines to rallways, ports, ships, and their destination markets. The company is looting to dreflop solutions that increase supply chain efficiency and accountablity. They have declifed to set aside $$3,000,000$ to fund the expanulon and improvement of their logitical services.

Management has developed two different options for expansion over the neat four years. The first option would require equal amounts of $$800,000$ to be avalatile at the end of each of the neat four yeark. The second eption would require $$400,000$ now, $$850,000$ one year from now, $$900,000$ three years from now and $$1,000,000$ four years from now.

The $$3,000,000$ will be invested theorghout the process to fund the accepted option. They have secured proyressive rates of $4\mathrm{.}00\%$ compounded semiannually for the first year, $4\mathrm{.}60\%$ compounded semiannally for the second year and $5\mathrm{.}00\%$ compounded semiannually for the remaining two years. They are permitted to withdraw a portion of the investment at any time without penalties.

Prospective Analysis

$9.$ Would the funds invested be sufficient to fund the frot option presented? Determine the current rature of the payments required in your analysis. Include a time diagram as part of your complete solution. $[7$ marks$]$

$2.$ What is the difference between the cash required for the first option and the cash available from the investment? $[1$ mark$]$

$3.$ Would the funds irrested be sufficient to fund the second option presented? Determine the current value of the payments required in your analynis. Include a time diagram as part of rour complete solution. $[7$ marks$]$

$4.$ What is the difference between the cash required for the second option and the carth available from the investment? $[1$ malk$]$

$5.$ Based on your financial analysh, which option would you sugest to Elevation Mining? Explain. $[2$ marks$]$

$6.$ Eepeat your analyis for each option if the company instead decides to invest the $$3,000,000$ in a fund that provides $4\mathrm{.}80\%$ compounded quarterly. Include time diagrams as part of your complete solution, Based on your financial analysis, which option would you magent to Flevation Mining? Explain. $[10$ marks$]$

$7.$ Is it better for flevation mining to choone the progresshe rates or the fixed rate$-$oction? fralain