A chemical engineer is on contract working in a relatively high-inflation country in Central America. She...
A chemical engineer is on contract working in a relatively high-inflation country in Central America. She wishes to calculate a project's present worth with estimated costs of $50,000 now and $6000 per year for 5 year beginning one year from now. Use a real interest rate of 12% per year to make the calculations,
a.without an adjustment for inflation.
b. considering inflation at a rate of 10% per year.
Homework Answers
A) Without Inflation adjustment, real interest rate is 12%
B) With inflation, real interest rate 12-10 = 2%
Use the below formulas in excel to find PV for the above 2 interest rates:
Answers obtained:
(A) PV(12%) = $71628.67
(B) PV(2%) = $78280.76
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