Elevation Mining has seen steady growth over the past several years and demand is expected to rise
Question:
Elevation Mining has seen steady growth over the past several years and demand is expected to rise in the coming years. Management knows that they must have competitive solutions to transport their commodities from mines to railways, ports, ships, and their destination markets. The company is looking to develop solutions that increase supply chain efficiency and accountability. They have decided to set aside $3,000,000 to fund the expansion and improvement of their logistical services.
Management has developed two different options for expansion over the next four years. The first option would require equal amounts of $800,000 to be available at the end of each of the next four years. The second option 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 throughout the process to fund the accepted option. They have secured progressive rates of 4.00% compounded semiannually for the first year, 4.60% compounded semiannually for the second year and 5.00% compounded semiannually for the remaining two years. They are permitted to withdraw a portion of the investment at any time without penalties.
QUESTION 1: Would the funds invested be sufficient to fund the second option presented? Determine the current value of the payments required in your analysis. Include a time diagram as part of your complete solution.
Cost Management Accounting and Control
ISBN: 978-0324559675
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan