Assume a firm has the following cash flows for the next five years: $50,000, $100,000, $150,000, $200,000, and $300,000. We start this business with an initial investment of $250,000.
a. Assuming the cost of capital is zero (free financing); what is the Net Present Value of cash flows from this project?
b. Assuming the discount rate is 3% above the rate of inflation, and the average rate of inflation is 7%, what is the Net Present Value of this project?
c. Interpret your findings in a and b.