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