A project's cash flows will grow 1.5% faster than the rate of inflation forever. The first cash flow will be $100 and will occur at the end of the year. The inflation rate is a constant 3.2%,
And the nominal interest rate is 10%. What is the value of this project?
A)$1,887
B)$2,941
C)$5,263
D)$1,471

Question

Quizplus · Accepted Answer

The correct answer is A because the value of the project is $1,887. The project's cash flows will grow 1.5% faster than the rate of inflation forever. The first cash flow will be $100 and will occur at the end of the year. The inflation rate is a constant 3.2%, and the nominal interest rate is 10%.

A Project's Cash Flows Will Grow 1