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Question: You are holding a bond that is returning an 8% per year return on investment. However, the inflat...

Show transcribed image text You are holding a bond that is returning an 8% per year return on investment. However, the inflation rate has spiked to 6% per year due to economic conditions. What is your real rate of return when inflation is taken into account? (b) Two plans will be compared using present worth. What are the PWs? (A) Initial cost 400,000 Yearly Revenue 300,000 Yearly Expenses 40,000. Salvage value 50,000 n = 4 years (B) Initial Cost 300,000 Yearly Revenue 200,000 Yearly Expenses 30,000 Salvage value 40,000 n = 6 years. Assume I = 6%, Use Longest Life Technique, Exact Replacement, Salvage value Decreases Linearly. You must make some assumption to get the two planning horizons so are they are the same. Use any reasonable (or unreasonable assumption) to do this but discuss what you are doing.

You are holding a bond that is returning an 8% per year return on investment. However, the inflation rate has spiked to 6% per year due to economic conditions. What is your real rate of return when inflation is taken into account? (b) Two plans will be compared using present worth. What are the PWs? (A) Initial cost 400,000 Yearly Revenue 300,000 Yearly Expenses 40,000. Salvage value 50,000 n = 4 years (B) Initial Cost 300,000 Yearly Revenue 200,000 Yearly Expenses 30,000 Salvage value 40,000 n = 6 years. Assume I = 6%, Use Longest Life Technique, Exact Replacement, Salvage value Decreases Linearly. You must make some assumption to get the two planning horizons so are they are the same. Use any reasonable (or unreasonable assumption) to do this but discuss what you are doing.