Question

If using excel please show equations used/explanation

6 7 Question 1 (30 points): Consider an escalation rate of 11% for all costs (including environmental remediation cost) and 8% for all incomes (including salvage value) for a project. At the end of 11th year, the project a salvage value of $6,000 and an environmental remediation cost of $15,000. Year 0 1 2 3 4 10 11 Cost -54,000 -16,000 Income 0 13,000 12,000 10,000 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 a) Calculate the escalated-dollar cash flow b) Calculate the escalated-dollar IRR c) Calculate the escalated-dollar NPV, using an escalated-dollar minimum rate of return of 12%. 0 1 0 0 0 0 0

Answer 1

Esc. rate 2 8% Inflow Outflow 3 11% 5 Year 1 10 11 12 cash inflow cash out flow -54000 13000 -16000 12000 10000 10000 9000 9000 8000 8000 7000 7000 12000 -15000 Escalated Inflow Escalated outflow Net cashflow ($54,000.00) -54000 $12,037.04 ($14,414.41) -3000 $10,288.07 $0.00 12000 $7,938.32 $0.00 10000 $7,350.30 $0.00 10000 $6,125.25 $0.00 9000 $5,671.53 $0.00 9000 $4,667.92 $0.00 8000 $4,322.15 $0.00 8000 $3,501.74 $0.00 7000 $3,242.35 $0.00 7000 $5,146.59 ($4,759.25)| -3000 13 14 15 16 17 10 11 18 19 20 21 22 Escalated Dollar IRR Escalated dollar NPV 6.02% ($11,792.17)

Formulas used :-

Escalated cash inflow =PV($C$2,A8,0,-B8) (and drag it to the other cells)

Escalated cash out flow=PV($C$3,A7,0,-C7)

Net Cashflow =B7+C7​​​​​C7

Escalated IRR =IRR(F7:F18)

Escalated NPV=NPV(12%,F7:F18)

11th Year cashi flows includes 6000 salvage value and cash out flow is remediation cost.

I hope my efforts will be fruitful to you...?