PROBLEM A $10,000 investment would return a series of $3,000 year-end payments over the next 5...

Question

Question

business accounting

Answer 1

Answer #1

Calculation of discount rate,

In case there is an inflation the rate of discount to be used is (1 + discount rate) x (1 + inflation rate) = ((1 + 0.13) x (1 + 0.06)) - 1= 1.1978 - 1
Therefore the rate of discount is 19.78%.

Calculation of NPV,

Therefore the present equivalent worth of the investment is 9015.47, (2504.6 + 2091 + 1745.7 + 1457.42 + 1216.75)

Answer 2

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