Calculate the cumulative present value of the following cash-flow stated in today’s dollars using:
a) Escalated dollar analysis
b) Constant dollar analysis
Market interest rate is 10%
Inflation rate is 8%
Escalation rates are:
• 10% for costs (C)
•12% for revenues (R)
C0 = $50,000 C1 = $80,000
R2 = $80,000(on years 2)
R3 = $80,000 (on years 3)