Answered step by step
Verified Expert Solution
Question
1 Approved Answer
For the following two questions please show your work. Thank you! Question #1 A proposed project has today's dollar costs and revenues as follows: 300
For the following two questions please show your work. Thank you!
Question #1 A proposed project has today's dollar costs and revenues as follows: 300 300 -200 -100 -100 1 2 For cases A through D, assume an escalated dollar i* of 12.0%: O A) Calculate the project escalated dollar NPV at time zero for revenue escalation of 5.0% in year 1 with an additional 6.0% in year 2. Cost escalation will be 8.0% in year 1 with the resulting value then escalating an additional 10.0% in year 2. B) Using the Part A results, calculate the project constant dollar NPV assuming 7.0% inflation per year. C) Calculate the project escalated dollar NPV assuming that today's dollar values equal escalated dollar values. State the explicit cost and revenue escalation assumption built into this analysis. D) Calculate the project constant dollar NPV using the assumption that today's dollar values equal constant dollar values. Use the same 7.0% annual inflation rate. State the explicit cost and revenue escalation assumption built into this analysis. Question #2 Crude Oil in Oct. 1980 sold for $39.50. Go look up the current price of crude oil and calculate the overall escalation rate of crude oil. (Round to the nearest year for your "n" value). Next, assuming inflation averaged 2.9% over that same period what was the constant rate of escalation in crude prices? (hint: use Fishers rule) Question #1 A proposed project has today's dollar costs and revenues as follows: 300 300 -200 -100 -100 1 2 For cases A through D, assume an escalated dollar i* of 12.0%: O A) Calculate the project escalated dollar NPV at time zero for revenue escalation of 5.0% in year 1 with an additional 6.0% in year 2. Cost escalation will be 8.0% in year 1 with the resulting value then escalating an additional 10.0% in year 2. B) Using the Part A results, calculate the project constant dollar NPV assuming 7.0% inflation per year. C) Calculate the project escalated dollar NPV assuming that today's dollar values equal escalated dollar values. State the explicit cost and revenue escalation assumption built into this analysis. D) Calculate the project constant dollar NPV using the assumption that today's dollar values equal constant dollar values. Use the same 7.0% annual inflation rate. State the explicit cost and revenue escalation assumption built into this analysis. Question #2 Crude Oil in Oct. 1980 sold for $39.50. Go look up the current price of crude oil and calculate the overall escalation rate of crude oil. (Round to the nearest year for your "n" value). Next, assuming inflation averaged 2.9% over that same period what was the constant rate of escalation in crude prices? (hint: use Fishers rule)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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