Question

This question is based on the following cash flows

C0=$10,000	I1=$2,000	I2=$2,000	I3=$3,000	I4=$3,000	I5=$2,500		L=$1,000
0	1	2	3	4	5

C: Cost, I: Income, L: Salvage

The escalation rate is 10% per year in this example.

Calculate the NPV of this investment assuming an escalated dollar minimum rate of return of 8%

________________________________________________________________________________________________________

There are two steps to this problem. First you must calculate the escalated value of each period's cash flow, remembering that costs are negative numbers and incomes (including salvage value) are positive numbers):

Escalated cash flow in period t = (Cash flow in period t)*F/P_10%,t.

Second, you need to calculate the NPV at a discount rate of 8% using the escalated cash flows from the first part of the problem.

______________________________________________________________________________________________________

All the answers available on chegg are incorrect. Please make sure your answer is correct. Thanks!

Answer 1