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Deco Inc. will be paid $100,000 one year from now. This is a nominal flow, which the firm discounts at an 8% nominal discount rate
Deco Inc. will be paid $100,000 one year from now. This is a nominal flow, which the firm discounts at an 8% nominal discount rate to find: PV=100,000/1.08=$92,593. If the inflation rate is 4%, calculate the real cash flow equivalent of a nominal cash flow of $100,000 in one year; calculate the real discount rate; and calculate the PV of the real cash flow. a. Real cash flow (@t=1)=$96,154; real discount rate =3.846%; PV of real cash flow =$92,593 b. Real cash flow (@t=1)=$92,593; real discount rate =3.846%; PV of real cash flow =$89,163 c. Real cash flow (@t=1)=$92,593; real discount rate =4%; PV of real cash flow =$89,031 d. Real cash flow (@t=1)=$104,000; real discount rate =3.846%; PV of real cash flow =$100,148 e. Real cash flow (@t=1)=$89,031; real discount rate =3.725%; PV of real cash flow =$92,593
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