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
Related questions
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?
![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%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6d30fc21-0e5a-4248-8926-6a0786ad3c24%2Fb1d518af-b259-4356-97d2-87be24d6b517%2Fga3rnyd_processed.png&w=3840&q=75)
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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