Task 7: Suppose now that you forecast an increase in real input price of 8% per year and that your project requires that you purchase a certain quantity of units each year. You also forecast that CAD will strengthen against USD, so that the real exchange rate is falling over time. Annual inflation and interest rates remain the same. You are presented with two different contracts: (1) A variable contract where you pay whatever the nominal price is in each year (which is known in advance), (2) a fixed-price contract where you lock in a nominal price of $26 for all years. Using calculations from Tasks 1-5 and taking the real interest rate as the discount rate, find the nominal price for each year under the variable price contract and determine which contract should you accept. Real price growth Units of input required Real exchange rate (CAD/USD) 8.00% % Year 2020 2021 2022 2023 2024 2025 # 500 1000 1500 2000 2500 3000 # 1.40 1.35 1.30 1.25 1.20 1.15 Nominal exchange rate (CAD/USD) # Variable Price Contract Real price of input (USD) USD Nominal price of the input (USD) USD Nominal price of the input (CAD) CAD Real price of input (CAD) CAD Real total cost of input required (CAD) CAD Real present value of total costs CAD Fixed Price Contract Nominal price of input (USD) USD Nominal price of input (CAD) CAD Real price of input (CAD) CAD Real total cost of input required (CAD) CAD Real present value of total costs CAD Which contract should you accept?