Ques 3) Consider the following ”today’s dollar ” cash flows

C $130 $200

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Rev $350 $350 $350

Op.C $50 $50 $50

Year 0 1 2 3 4

A) Calculate the year escalated dollars if revenue at 9% per year and all costs escalate at 8% per year.Complete the escalated dollar NPV timeline table.

b) Using the escalated dollar cash flow results from case A, discount them by an inflation rate of 5% per year, present the values in a new time line

c) If the escalated minimum ROR is 15% what is the equivalent constant dollar ROR

d) Will individuals and governments with large amounts of borrowed money benefit or hurt from inflation? Why?


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