Prediction Error In the first example in the chapter, the original investment was $3,791, useful life five years, annual cash inflow from operations $1,000, and internal rate of return 10 percent.

1. Suppose the annual cash flow were $900 instead of $1,000. All other parameter predictions are correct. What is the cost of prediction error measured in terms of net present value, assuming a minimum desired rate of return of 10 percent?

2. Repeat (1), except assume that the annual cash flow was $1,100.

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