THANK YOU SO MUCH IN ADVANCE! Net Present Value questions:

a$.$ Assume that a project ABC will generate the following cash inflows over the next $5$

years.

i$.$ Assume that the cost of capital is $12\%,$ what is the present value of this

project?

ii$.$ Part i$)$ used a nominal discount rate and the cash inflows incorporated

inflation. Assume that inflation is expected to be $3\%$ per year. Redo part i$)$

with real cash flows and a real discount rate.

b$.$ A water treatment plant produces cash flow of $$14$ million per year, after deducting

its maintenance fees, operating expenses and taxes. All the cash flow is paid out to the

water treatment plant owners. The cash flow is expected to grow at the inflation rate,

which is expected to be at $2\%$ per year. The opportunity cost of capital is $8\%$ per year.

Assume that the water treatment plant will operate for a very long time, for simplicity,

assume that it will last forever.

i$.$ What is the present value of the water treatment plant? Assume the first cash flow

is received starting next year.

ii$.$ Now assume that interest rate is generated in a continuous stream starting

immediately. What is the present value of the water treatment plant, assume the

first cash flow is still received starting next year? $($Hint: you need to first calculate

the continuous compounding interest rate we discussed in topic $1).$