Question
The states Secretary of Education is considering the purchase of a new computer for $100,000. A cost study indicates that the new computer should save
The states Secretary of Education is considering the purchase of a new computer for $100,000. A cost study indicates that the new computer should save the Department of Education $30,000, 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.
Required:
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Compute the 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.
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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.
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