Question
Required information Skip to question [The following information applies to the questions displayed below.] The states Secretary of Education is considering the purchase of a
Required information
Skip to question
[The following information applies to the questions displayed below.]
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:
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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.)
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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.
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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 |
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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.)
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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.)
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