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The states Secretary of Education is considering the purchase of a new computer for $117,000. A cost study indicates that the new computer should save the Department of Education $39,000, measured in real dollars, during each of the next eight years. The real interest rate is 20 percent and the inflation rate is 10 percent. As a governmental agency, the Department of Education pays no taxes.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

1. Prepare a schedule of cash flows measured in real dollars. Include the initial acquisition and the cost savings for each of the next eight years. (Round "Discount Factor" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

Year	Cash Flow in Real Dollars	Discount Factor (real interest rate = 0.20)	Present Value
0
1
2
3
4
5
6
7
8

2. Using cash flows measured in real dollars, compute the net present value of the proposed computer. Use a real discount rate equal to the real interest rate.

	Net present value

1. Compute the nominal interest rate. (Enter your answer as a decimal not as a percentage (e.g., enter 12% as 0.12).)

Nominal interest rate

2. Prepare a schedule of cash flows measured in nominal dollars. Use a nominal discount rate equal to the nominal interest rate. (Negative amounts should be indicated by a minus sign. Round the "Price Index" to 4 decimal places, the "Discount Factor" to 3 decimal places, and other answers to the nearest dollar amount.)

Year	Cash Flow in Real Dollars	Price Index	Cash Flow in Nominal Dollars	Discount Factor	Present Value
0
1
2
3
4
5
6
7
8

3. Using cash flows measured in nominal dollars, compute the net present value of the proposed computer. Use a nominal discount rate equal to the nominal interest rate. (Round your answer to the nearest dollar amount.)

Net present value