You have to evaluate an Infrastructure Investment project in Illinois. To make a solid recommendation you have to calculate the NPV, Payback Period, and the IRR as we discussed in class.

The initial investment is $22,000,000, and the program requires an annual maintenance fee of $1,000,000 at the end of each year. The rate of return i = 0.1 (10%)

The revenue for this project is estimated as follows:

Calendar Year

 2012 2013 2014 2015 2016 

Annual Revenue

1 4,000,100

2 6,001,000

3 8,025,000

4 11,350,000

5 10,000,050

If you were asked to include an inflation rate of 3% per year into your evaluation, would that change the outcome of your analysis?

1 Note: Discount factor = (1++ )

K = rate of return, i = inflation, n = year

In class our discount factor was 1/ (1+0.05)n