Answered: Expected Cash Flow (in Actunl Dollars)…

Expected Cash Flow (in Actunl Dollars) End of Year General Intlatlon Rate -$45,000 1 $36,000 6.5% 2 $46,000 7.7% 3 $26,000 8.1%

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter10: Valuing Early-stage Ventures

Section: Chapter Questions

Problem 1cM

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Question

Consider the following project's after-tax cash flow and the expected annual general inflation rate during the project period:

(a) Determine the average annual general inflation rate over the project period.
(b) Convert the cash flows in actual dollars into equivalent constant dollars
with year 0 as the base year.
(c) If the annual inflation-free interest rate is 5%, what is the present worth of
the cash flow?

Expected Cash Flow
(in Actunl Dollars)
End of Year
General Intlatlon Rate
-$45,000
1
$36,000
6.5%
2
$46,000
7.7%
3
$26,000
8.1%

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