s) The economy is projected to have inflation rate of 2% in year 1,3% in year 2

Question

s) The economy is projected to have inflation rate of 2% in year 1,3% in year 2 and 4% in year 3 From the GPncial data, determine the after tax cash flow in actual dollar ATCF(AS) and the after tax cash flow in real dollar ATCFIRS) for year 1-3 and the rate of return of both actual and rea; cash flows in table 3 below YR. 0 ATCF (A) ATCF (R$) $225,000 -$225,000 (5 pts) Is it ethical for the team to inflate market revenue the bank and attract investors to invest into the company? Why? forecasts and profit margin to show growth to obtain loan from

Explanation / Answer

1. The Actual $ ATCF is the ATCF which is not adjusted for inflation while Real $ ATCF is adjusted for inflation. The cash flows are

ROR iscomputed as Sum of CF years 1-3/ Initial investment

Q2: It is unethical and fraudulent for a business to show incorrect revenues and profits to attract investors. The investors will expect a certain amount of returns when this is done. The company will not be able to provide them with the expected returns and hence will be misusing the funds of the investors. Such action amounts to fraud and is subject to criminal action.

Year A$ R$ 0 -225000 -225000 1 -225000 -229500 2 -225000 -236385 3 -225000 -245840 ROR -300% -316%

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