CHAPTER 1

b. Now, the real cash flows are $400,000 per year for 20 years and $5 million (nominal) in 20 years. In real terms, the $5 million dollar payment is: $5,000,000/(1.04)20 = $2,281,935. Thus, the present value of the project is: [As noted in the statement of the problem, the answers agree, to within rounding errors.] ................
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