Management of Essen Manufacturing Company (problem 15-33

) received your report on the estimated net present value of the new equipment. (All numbers in 15-33

assumed no inflation.) However, management is disturbed about their economist's report, which indicates an expected inflation rate of 6 percent over the next 10 years.

a. Calculate the new nominal interest rate.

b. Prepare a schedule showing how inflation would affect annual operating flows, assuming Year 1 operating flows are 6 percent higher than the annual savings computed in problem 15-33

.

c. Prepare a report indicating how this expectation would affect your computed net present values. Assume the new equipment could be sold for $100,000 after 10 years. Show supporting computations in good form.