A project will produce cash inflows of $5,400 a year for 3 years with a final cash inflow of $2,400 in Year 4. The project's ini
1 answer:
Answer:
Net present value = $506.80
Explanation:
Provided details are
Cash outflow at present = $13,400
Present value will be same as is incurred today.
Cash inflow = $5,400 for 3 years and $2,400 in 4th year
Rate of required return = 14.2%
Present value factor for 3 years cumulative = 2.314
Present value factor for 4th year = 0.588
Present value of cash inflow = $5,400 2.314 + $2.400
0.588
= $12,495.60 + $1,411.2 = $13,906.80
Thus, net present value = Present value of cash inflow - Present value of cash outflow
= $13,906.80 - $13,400 = $506.80
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The complete question has been added with an image for better understanding of the concept. The beneficiaries of the inflation and interest rates will be,
- When inflation is 1 percent, Diane will benefit more than Jack;
- When inflation is 0 percent; Diane will benefit more than Jack;
- When inflation is 4 percent; Jack will benefit more than Diane;
- When inflation is -2 percent; Diane will benefit more than Jack.
A given increase in rates or prices of any commodity, including monies, over a particular financial period is known as inflation.
The rates and beneficiaries due to the unexpected change in inflation for the above situation is given attached in the image in the form of a table.
Hence, the significance of inflation is as mentioned.
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