PingPong Corp has decentralised and divisional managers are allowed to make their own investment decisions subject to confirmation by the main company board. Because each of three divisions (Ping, Pong and Dong) are subject to different levels of risk, it has been thought appropriate to use different discount rates in each division.

Ping has been told that its real discount rate is 5%. The general rate of inflation, based on an index that uses a very wide range of prices, is 2%. In the industry in which Ping operates, a number of pieces are seen to be inflating at 3%.

Pong is assessing a project in which the first of four annual lease payments has been agreed at 120,000 . This is payable in one years time and subsequent payments will rise by 4% p.a.

Pongs proper money cost of capital is 8%.

Dong is considering investing 1,000,000 in a project which will produce the following annual outflows and inflows:

Year	1	2	3
Inflows,	2,000,000	3,000,000	2,000,000
Outflows,	1,800,000	2,500,000	1,500,000

The cash flows, which arise at the end of each year, are stated in current year terms. It is expected that outflows will rise by 3% p.a. and inflows by 2% p.a. The money cost of capital of the Dong Division is 9%.

What is Pings money discount rate?

What is the present value of Pongs last payment that will be made in four years time?