You just signed a business consulting contract with one of your clients. The client will pay you $50,000, in today's dollars, at the end of the first year increasing by $5,000 per year for five years. You anticipate the general inflation rate over this period to be 6%. Your desired inflation-free interest rate is 4%. Determine the equivalent present worth of this cash flow using constant dollar analysis and actual dollar analysis?

You just signed a business consulting contract with one of your clients. The client will pay you $50,000, in today's dollars, at the end of the first year increasing by $5,000 per year for five years. You anticipate the general inflation rate over this period to be 6%. Your desired inflation-free interest rate is 4%. Determine the equivalent present worth of this cash flow using constant dollar analysis and actual dollar analysis?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 2.6IP

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