The project analyst of Carbon Company is considering the purchase of a new computer mainframe for P5 million. The analysis reveals that the new mainframe should bring in additional after-tax cash flows of P850,000, measured in real pesos during the next ten years. The real interest rate is 10% and the inflation rate is 5% or a nominal rate of 15.50% Using nominal cash flows (i.e., annual cash flows cumulatively increased by 5% every year) and nominal rate of 15.50%, how much net present value is expected from the project?   a. P166,552 b. P222,882 c. P182,406 d. P151,878

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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The project analyst of Carbon Company is considering the purchase of a new computer mainframe for P5 million. The analysis reveals that the new mainframe should bring in additional after-tax cash flows of P850,000, measured in real pesos during the next ten years.

The real interest rate is 10% and the inflation rate is 5% or a nominal rate of 15.50%

Using nominal cash flows (i.e., annual cash flows cumulatively increased by 5% every year) and nominal rate of 15.50%, how much net present value is expected from the project?

 

a. P166,552

b. P222,882

c. P182,406

d. P151,878

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