1- Consider the following project's after-tax cash flow and the expected annual inflation rates during the project period. a) Convert the cash flows in actual dollars into equivalent constant dollars with the base year 0. (complete the table for constant dollars cash flow) b) If the annual real interest rate is 4.3%, what is the present worth of the cash flow? Is this project acceptable? Final answer section (b): actual cash flow Constant dollars cash flow year amount уear amount - $395,000 S 95,000 $ 95,000 S 250,000 - $ 30,000 $ 150,000 1 1 2 4 4 5 5 year Inflation rate 1 3% 2 5% 5% 5% 5 6%

1- Consider the following project's after-tax cash flow and the expected annual inflation rates during the project period. a) Convert the cash flows in actual dollars into equivalent constant dollars with the base year 0. (complete the table for constant dollars cash flow) b) If the annual real interest rate is 4.3%, what is the present worth of the cash flow? Is this project acceptable? Final answer section (b): actual cash flow Constant dollars cash flow year amount уear amount - $395,000 S 95,000 $ 95,000 S 250,000 - $ 30,000 $ 150,000 1 1 2 4 4 5 5 year Inflation rate 1 3% 2 5% 5% 5% 5 6%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 2P

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