Question

Consider the following “today’s dollar” cash flows.

C	$(130.00)	$(200.00)
Rev			$ 350.00	$ 350.00	$350.00
Op. C			$ (50.00)	$ (50.00)	$ (50.00)
Year	0	1	2	3	4

1. Calculate the escalated dollars if revenue escalates at 9% per year, and all costs escalate at 8% per year. Complete the escalated dollar NPV timeline table. (15 points)

Answer 1

Please find below answer :

Note : please note that escalation factor has been applied in each year for revenue as well cost.

Table : Escalated Revenue and Cost
Year	0	1	2	3	4
Cash out flow	$       (130)	$       (200)
Revenue			$        350	$        350	$        350
Escalation rate			9%	9%	9%
Escalated Revenue			$        382	$        382	$        382
Cost			$        (50)	$        (50)	$        (50)
Escalation rate			8%	8%	8%
Escalated cost			$        (54)	$        (54)	$        (54)
Table 2: Escalated Cash flow
Year	0	1	2	3	4
Cash out flow	$       (130)	$       (200)
Escalated cost			$        (54)	$        (54)	$        (54)
(a)Total Cash outflow	$       (130)	$       (200)	$        (54)	$        (54)	$        (54)
Cash inflow
Escalated Revenue			$        382	$        382	$        382
(b)Total Cash inflow	$             -	$             -	$        382	$        382	$        382
Net cash inflow (b)-(a)	$       (130)	$       (200)	$        328	$        328	$        328