A project involves a substantial expenditure right now, and is expected to yield a return of $X ten years in the future. We expect the annual inflation rate to be positive over the next ten years. Four analysts calculate the present worth of the project. Alice bases her calculation on the assumption that X is given in real dollars, using a real MARR. Bob also assumes that X is in real dollars, but uses the actual MARR to calculate present worth. Cecil assumes that X is in actual dollars, and calculates present worth using the real MARR. Donna also assumes that X is in actual dollars, and calculates present worth using the actual MARR. Who comes up with the highest figure for present worth?
A)Alice
B)Bob
C)Cecil
D)Donna
E)They will all come up with the same figure.

Question

Quizplus · Accepted Answer

Cecil will come up with the highest figure because he assumes X is in actual dollars and uses the real MARR, which does not account for inflation, resulting in a higher present worth.

A Project Involves a Substantial Expenditure Right Now, and Is