Given the cash flows in actual dollars provided in the accompanying table, conve

Question

Given the cash flows in actual dollars provided in the accompanying table, convert the cash flows to equivalent cash flows in constant dollars if the base year is time 0. Assume that the market interest rate is 16% and that the general inflation rate (f') is estimated at 4%

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Cash Flow (in actual dollars)
0 $2,500 4 $4,500 5 $3,500 7 $5,500 Please show all work and don't use excel, thanks

n
Cash Flow (in actual dollars)
0 $2,500 4 $4,500 5 $3,500 7 $5,500 Please show all work and don't use excel, thanks
n
Cash Flow (in actual dollars)
0 $2,500 4 $4,500 5 $3,500 7 $5,500

Explanation / Answer

year                    Cash flow (actual dollars)                      cash flow (constant dollar) 0                      $2,500                                                          $2,500 4                      $4,500                                                   $4,500/1+.04)^4 =   $3,846.619 5                      $3,500                                                   $3,500/(1+.04)^5=   $2,876.745 7                      $5,500                                                   $5,500/(1+.04)^7=   $4,179.548

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