Question 1 Your department is budgeting miscellaneous expenses for the next 5 ye

Question

Question 1 Your department is budgeting miscellaneous expenses for the next 5 years. Your best guess at the annual inflation rate is 3.9%, and the combined MARR is 15%. Expenses currently run $14,500 per year. Assume that expenses are end-of-year payments. Determine the then-current dollar amounts for years 1, 2, 3, 4, and 5 EOY Then-Current Dollar Amount carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±5. Determine the constant dollar amount for years 1, 2, 3, 4, and 5 EOY Constant Dollar Amount 4 lations to 5 decim al places and then round your final answer to the n earest dollar. The tolerance is ±5.

Explanation / Answer

Current Dollar amount does not take into effect of inflation

Constant Dollar amount shows the effect of inflation

Constant Dollar Amount

1 $14,500

2 $14,500

3 $14,500

4 $14,500

5 $14,500

Constant Dollar Amount

1 14,500*(1+Inflation Rate) = 14500*(1+0.039) = $15,066

2 15,065.5*(1+0.039) = $15,653

3 15,653.0545(1+0.039) = $16,264

4 16,263.52363(1+0.039) = $16,898

5 16,897.80105(1+0.039) = $17,557

PW of Current dollar amount = 14,500*PVAF(15%,5year)

= 14500*3.35216 = $48,606

To calculate PW of constant dollar amount, we have to adjust MARR with inflation Rate

MARR= (1+MARR)(1+Infl) - 1

= (1+0.15)(1+0.039) - 1 = 19.485%

PW = $48,606

Cash Flow PVF PW 15,065.50 0.83693 12608.7 15,653.05 0.70044 10964.08 16,263.52 0.58622 9533.985 16,897.80 0.49062 8290.422 17556.82 0.41061 7209.063 Total 48606.25

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.