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We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%.                                              The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions: e. What are the real cash flows from Project A and Project B?

We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%.                                              The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions: e. What are the real cash flows from Project A and Project B?

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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A3 5e

5. We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%.                                             

The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions:

e. What are the real cash flows from Project A and Project B?          

 

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