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A self-employed engineer is on contract with Dow Chemical, currently working in a relatively high-inflation country....

A self-employed engineer is on contract with Dow Chemical, currently working in a relatively high-inflation country. She wishes to calculate a project’s present worth with estimated costs of $35,000 now and $7,000 per year for 5 years beginning one year from now with increases of 12% per year thereafter for the next 8 years. Use a real interest rate of 15% per year to make the calculations:

(a) without an adjustment for inflation

(b) considering inflation at a rate of 11% per year

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Answer #1

present value formula= cost given in the year/(1+r)power n

where n is year.

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