Answer:
(4) The the actual (or real) free cash flow (after inflation rate is considered)
2021 (First Year): $980.39
2022 (Second Year): $961.17
(5) Present value of the investment (Investment year is 2020) is $1,735.54
Explanation:
Free cash flow in 2021: $1000
Free cash flow in 2022: $1000
WACC (discounting rate): 10%
(4) The the actual (or real) free cash flow (after inflation rate is considered) in 2021 (First Year) and 2022 (Second Year):
FCF in 2021 after considering inflation = $1000/(1+2%) = $980.39
FCF in 2022 after considering inflation = $1000/((1+2%)^2) = $961.17
(5) Present value of the investment (Investment year is 2020)
PV = Cash flow in year 1/(1+ discounting rate) + Cash flow in year 2/(1+ discounting rate)^2
= 1000/(1+10%) +1000/((1+10%)^2)
=1,735.54