A project has an upfront cost (1-0) of $10,000, and it produces annual FCF of $3,000/year from 1-1 through t-7 (seven years). As you can calculate, the net present value of this project, as a stand alone project, without considering inflation, and using a discount rate of 10.0 percent, is $4.605.26. The firm intends to replicate this project out to infinity every seven years, and expects annual inflation to be 4.0 percent for the cash outflows, and 3.0 percent for the cash inflows. That is, the expected cost in Year 7 of replicating this project will be ($10,000) (1.04) = $13.159.32, and the expected cash inflow in Year 1 will be ($3.000) (1.03)¹ = $3.090, in Year 2 will be ($3,000) (1.03)2 = $3,182.70, etc. Given this information, and assuming the discount rate remains the same, determin the net present value of this project if it is infinitely replicated and inflation is taken into

A project has an upfront cost (1-0) of $10,000, and it produces annual FCF of $3,000/year from 1-1 through t-7 (seven years). As you can calculate, the net present value of this project, as a stand alone project, without considering inflation, and using a discount rate of 10.0 percent, is $4.605.26. The firm intends to replicate this project out to infinity every seven years, and expects annual inflation to be 4.0 percent for the cash outflows, and 3.0 percent for the cash inflows. That is, the expected cost in Year 7 of replicating this project will be ($10,000) (1.04) = $13.159.32, and the expected cash inflow in Year 1 will be ($3.000) (1.03)¹ = $3.090, in Year 2 will be ($3,000) (1.03)2 = $3,182.70, etc. Given this information, and assuming the discount rate remains the same, determin the net present value of this project if it is infinitely replicated and inflation is taken into

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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