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

(a) Determine the average annual general inflation rate over the project period.
(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 5%, what is the present worth of the cash flow? Is this project acceptable?

Transcribed Image Text:

Expected End of Year 0 Cash Flow (in Actual S) General Inflation Rate $45,000 32,000 32.000 32,000 3.5% 2 5.5