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A consulting company is retained by a large organization for a 4-year project. The consulting fees in the first year will be $320,000. Costs are
A consulting company is retained by a large organization for a 4-year project. The consulting fees in the first year will be $320,000. Costs are expected to decrease by 4% per year due to the learnign curve and the consulting companys ability to work more quickly as it better understands the organizations procedures. The consulting company will bill the organization for the entire cost of the project at the end of year 4 and will charge 12% interest per year on the consulting fees incurred.
- What type of cash flow is this?
- What are the values of i and g respectively?
- At t=0, the organization wants to know how much to set aside to pay the consulting company for the 4-year project. What is the dollar amount they should set aside?
- How much will the organization owe the consulting company at the end of year 4?
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