Consider an escalation rate of 13% for all costs, 11% for all incomes, and an inflation rate of 4% for thefollowing cash flow. At the end of project life, abandonment cost will be 32,000 and equipment could besold for 12,000.Year14579Cost-30,0000.-30,000Income9,0009,000 9,0009,0009,0009,000 9,0009,000 9,000a) Calculate the IRR in escalated dollars and in constant dollars for this project.b) Calculate the NPV in escalated dollars and in constant dollars for this project with an escalated-dollar minimum rate of return of 15%.

Considering escalated values for costs and income. Year 0 1 2 3 4 5 6 7 8 9 Cost *113% -33,900…

a) Calculate the IRR in escalated dollars and in constant dollars for this project. b) Calculate the NPV in escalated dollars and in constant dollars for this project with an escalated- dollar minimum rate of return of 15%.

a) Calculate the IRR in escalated dollars and in constant dollars for this project. b) Calculate the NPV in escalated dollars and in constant dollars for this project with an escalated- dollar minimum rate of return of 15%.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Consider an escalation rate of 13% for all costs, 11% for all incomes, and an inflation rate of 4% for the
following cash flow. At the end of project life, abandonment cost will be 32,000 and equipment could be
sold for 12,000.
Year
1
4
5
7
9
Cost
-30,000
0.
-30,000
Income
9,000
9,000 9,000
9,000
9,000
9,000 9,000
9,000 9,000
a) Calculate the IRR in escalated dollars and in constant dollars for this project.
b) Calculate the NPV in escalated dollars and in constant dollars for this project with an escalated-
dollar minimum rate of return of 15%.

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