4. Net cash flow from the purchase of an asset for $1,000 is expected to be responsive to inflation. The inflation rate is forecast to be 5% for the next 3 years. Based on this forecast, the expected cash flow in actual dollars is shown below. Year Cash flow 0 -$1,000 1 $400 2 $600 3 $500 a) What is the combined interest-inflation rate if the organization expects a 10% rate on investments? 1 of 2 b) Using this interest rate, calculate the present worth in constant dollars. c) What cash flow in constant dollars would produce the same present worth (in constant dollars) as in (b) when discounted at 10%? d) Do you feel it is a better practice to estimate future cash flow in actual dollars or in constant dollars? Why? 4. Net cash flow from the purchase of an asset for $1,000 is expected to be responsive to inflation. The inflation rate is forecast to be 5% for the next 3 years. Based on this forecast, the expected cash flow in actual dollars is shown below. Year Cash flow 0 -$1,000 1 $400 2 $600 3 $500 a) What is the combined interest-inflation rate if the organization expects a 10% rate on investments? 1 of 2 b) Using this interest rate, calculate the present worth in constant dollars. c) What cash flow in constant dollars would produce the same present worth (in constant dollars) as in (b) when discounted at 10%? d) Do you feel it is a better practice to estimate future cash flow in actual dollars or in constant dollars? Why