The Fairwinds Development Corporation is considering taking part in one or more of three different development projects—A, B, and C—that are about to be launched. Each project requires a significant investment over the next few years and then would be sold upon completion. The projected cash flows (in millions of dollars) associated with each project are shown in the table below. Year Project A Project B Project C
1 -4 -8 -10
2 -6 -8 -7
3 -6 -4 -7
4 24 -4 -5
5 0 30 -3
6 0 0 44

Fairwinds has $10 million available now and expects to receive $6 million from other projects by the end of each year (1 through 6) that would be available for the ongoing investments the following year in projects A, B, and C. By acting now, the company may participate in each project either fully, fractionally (with other development partners), or not at all. If Fairwinds participates at less than 100 percent, then all the cash flows associated with that project are reduced proportionally. Company policy requires ending each year with a cash balance of at least $1 million.

Required:
a. Visualize where you want to finish. What numbers are needed? What are the decisions that need to be made? What should the objective be?
b. Suppose that Fairwinds were to participate in Project A fully and in Project C at 50 percent. Calculate by hand what the ending cash positions would be after year 1 and year 2.
c. Make a rough sketch of a spreadsheet model, with blocks laid out for the data cells, changing cells, output cells, and target cell.

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answer; monopolistic competition;

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.