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Category > Business & Finance Posted 31 Jul 2017 My Price 6.00

1. Mr. Art Deco will be paid $100,000 one year hence.

1. Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate:

PV =100,000/1.08 =$92,593

The inflation rate is 4%.

Calculate the PV of Mr. Deco’s payment using the equivalent real cash flow and real discount rate. (You should get exactly the same answer as he did.)

2. True or false?

a. A project’s depreciation tax shields depend on the actual future rate of inflation.

b. Project cash flows should take account of interest paid on any borrowing undertaken to finance the project.

c. In the U.S., income reported to the tax authorities must equal income reported to shareholders.

d. Accelerated depreciation reduces near-term project cash flows and therefore reduces project NPV

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Homework Helper
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Status NEW Posted 31 Jul 2017 02:07 PM My Price 6.00

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