The following cash flows are in actual dollars:
n Cash Flow (in Actual $)
0.............................. $2,500
4.............................. 3,500
5.............................. 4,500
7.............................. 5,500
Convert to an equivalent cash flow in constant dollars if the base year is time 0. Keep cash flows at the same point in time-that is, years 0, 4, 5, and 7. Assume that the market interest rate is 14% and that the general inflation rate () is 5% per year.