A project costs $12,800 and is expected to provide a real cash inflow of $10,000 at the end of each of years 1 through 5.Calculate the net present value of this project if inflation is expected to be 4% in each year and 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 = 0.065NPV = −$12,800 + $10,000{(1 / 0.065) − [1 / 0.065(1.065)⁵]} = $28,756.79

A Project Costs $12,800 and Is Expected to Provide a Real