A project anticipates net cash inflows of $10,000 at the end of year 1, with that amount increasing at the expected 4% rate of inflation over the subsequent 4 years. The initial project cost is $12,800. Calculate the real present value of this 5-year cash stream if the firm employs a nominal discount rate of 10.76%.
A) $33,522.30
B) $28,756.79
C) $33,294.07
D)$26,311.15

Question

Quizplus · Accepted Answer

Real rate = 1.1076/1.04 - 1 = .065NPV = -$12,800 + $10,000{(1/.065) - [1/.065(1.065)⁵]} = $28,756.79

A Project Anticipates Net Cash Inflows of $10,000 at the End