Impact of inflation on Net Present Value: Management of Essen Manufacturing Company (problem 15-32) received your re- port on the estimated net present value of the new equipment. (All numbers in 15-32 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.

Required:

a. Calculate the new nominal interest rate.

b. Prepare a schedule showing how inflation would affect annual operating flows.

c. Prepare a report indicating how this expectation would affect your computed net present values. Show supporting computations in good form.