Question
For a given project you have the following information: The social rate of time preference is 7 % (annually, in nominal terms). The price index
For a given project you have the following information: The social rate of time preference is 7 % (annually, in nominal terms). The price index for consumer goods (the CPI) is expected to increase by 2 % every year and its assumed it can be used as a deflator for all cases involving project costs and benefits. The marginal rate of return on private investments in the economy is 10 % (annually, in nominal terms). The prices of investment goods are expected to increase by 2 % annually like the CPI. The total investment taking place in 2021 - is 1000 million $ (measured in 2020 prices) and it will last one year to construct and initiate the project. There will be 5 years of benefits and the estimate is annual benefits of 300 million $ for the first two years, measured in 2020 prices. For the last three years the annual benefit will be 330 million $ in nominal terms.
Question:
Calculate the NPV keeping all the variables in the nominal values
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started