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Real repair costs on an investment are $42599 per year growing at the inflation rate of...

Real repair costs on an investment are $42599 per year growing at the inflation rate of 2%. The nominal discount rate is 3.5%. What is the present value of these costs over 8 years?

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Answer #1

The repair costs are as below with annual inflation of 2%

Year Real repair costs
1 42599
2 43450.98
3 44320
4 45206.4
5 46110.53
6 47032.74
7 47973.39
8 48932.86

NPV= C0+ CF1/(1+r)^1 + CF2/(1+r)^2 …………CFn/(1+r)^n=

$313,041.10

WORKINGS

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