Calculate the PV of a project with estimated costs of $350,000 now and $70,000 per year for 5 years beginning 1 year from now with increases of 12% per year thereafter for the next 8 years. Use a real interest rate of 15% per year to make the calculations (a) without an adjustment for inflation and (b) considering inflation at a rate of 8% per year. Draw a cash flow diagram and depict the cash flows in year 6 and year 13 from the start.
Calculate the PV of a project with estimated costs of $350,000 now and $70,000 per year for 5 years beginning 1 year from now with increases of 12% per year thereafter for the next 8 years. Use a real interest rate of 15% per year to make the calculations (a) without an adjustment for inflation and (b) considering inflation at a rate of 8% per year. Draw a cash flow diagram and depict the cash flows in year 6 and year 13 from the start.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Calculate the PV of a project with estimated costs of $350,000 now and $70,000 per year
for 5
years beginning 1 year from now with increases of 12% per year thereafter for the
next 8 years. Use a real interest rate of 15% per year to make the calculations (a) without
an adjustment for inflation and (b) considering inflation at a rate of 8% per year. Draw a
cash flow diagram and depict the cash flows in year 6 and year 13 from the start.
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