The company you work for is trying to decide between two projects. project 1 costs $160,000 up front, and has an expected life of 4 years, over which it will return $52,000 each of the 4 years. Project 2 would last for 20 years, costs $1.5 million up front and return $170,000 at the end of each of the 20 years. Assuming a real discount rate of 6%, which project has the higher equivalent annual net benefit.
You are offered $1600 (in nominal dollars) 7 years from now in exchange for a loan of $600 today. You expect inflation to run 2.4% per year and your real hurdle rate is 4.5%. Should you make the loan?