Question

Consider the following​ project's after-tax cash flow and the expected annual general inflation rate during the project period.

                                                                                                                                                                                                                                                                                                                                           

End of Year	Expected Cash Flow​(in Actual​ $)		General Inflation Rate
0	minus−​$46 comma 00046,000
1	​$31,000		3.9	​%
2	​$31,000		4.5
3	​$31,000		5.7

b) Convert the cash flows in actual dollars into equivalent constant dollars with the base year 0.

(Round to the nearest​ dollar.)

The equivalent cash flow in constant dollars at the end of year 1 is

​(Round to the nearest​ dollar.)

The equivalent cash flow in constant dollars at the end of year 2 is

​​(Round to the nearest​ dollar.)

The equivalent cash flow in constant dollars at the end of year 3 is

​​(Round to the nearest​ dollar.)

​(c) If the annual​ inflation-free interest rate is 8​%, what is the present worth of the cash​ flow?

​(Round to the nearest​ dollar.)
Is this project​ acceptable? Yes/ No

Answer 1

b. Convert the cash flows in actual dollars into equivalent constant dollars with the base year 0.

c. If the annual​ inflation-free interest rate is 8​%, what is the present worth of the cash​ flow?

Refer to the below image for more detailed solution with calculations.