Consider the following project’s after-tax cashflow and the expected annual general inflation rateduring the project period.ExpectedEnd ofYearCash Flow(in Actual $)GeneralInflation Rate0 -$45,0001 32,000 3.5%2 32,000 4.23 32,000 5.5(a) Determine the average annual general inflationrate over the project period.(b) Convert the cash flows in actual dollars intoequivalent constant dollars with the base year 0.(c) If the annual inflation-free interest rate is 5%,what is the present worth of the cash flow? Isthis project acceptable?

Consider the following project’s after-tax cashflow and the expected annual general inflation rateduring the project period.ExpectedEnd ofYearCash Flow(in Actual $)GeneralInflation Rate0 -$45,0001 32,000 3.5%2 32,000 4.23 32,000 5.5(a) Determine the average annual general inflationrate over the project period.(b) Convert the cash flows in actual dollars intoequivalent constant dollars with the base year 0.(c) If the annual inflation-free interest rate is 5%,what is the present worth of the cash flow? Isthis project acceptable?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 10P

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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 dollarswith year 0 as the base year.(c) If the annual inflation-free interest rate is 5%, what is the present worth ofthe cash flow?
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