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
Problem 1PS
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Question
Consider the following project's after-tax cash flow and the expected annual general inflation rate during the project period:
(a) Determine the average annual general inflation rate over the project period.
(b) Convert the cash flows in actual dollars into equivalent constant dollars
with year 0 as the base year.
(c) If the annual inflation-free interest rate is 5%, what is the present worth of
the cash flow?
Transcribed Image Text:Expected Cash Flow
(in Actunl Dollars)
End of Year
General Intlatlon Rate
-$45,000
1
$36,000
6.5%
2
$46,000
7.7%
3
$26,000
8.1%
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