You invest BRL 10 million in inventory for your Brazilian factory. You expect to make no further investment or disinvestment in inventory over the 5-year life of your project. You expect the inventory will retain its real value. Inventory costing is done on a LIFO (last in/first out) basis. Expected annual inflation in BRL is 8 percent. The Brazilian corporate income tax rate is 40 percent. What is the expected nominal value of the inventory in five years before taxes (approximately)?

Question

Quizplus · Accepted Answer

The expected nominal value of the inventory in five years can be calculated using the formula for future value: FV = PV * (1 + r)^n, where PV is the present value (BRL 10 million), r is the annual inflation rate (8% or 0.08), and n is the number of years (5). Thus, FV = 10 million * (1 + 0.08)^5 ≈ BRL 14.7 million. This calculation assumes the inventory retains its real value and adjusts for inflation over the 5-year period.

You Invest BRL 10 Million in Inventory for Your Brazilian