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I am studying P4 and having a bit of difficulty in understanding how inflation can be calculated in NPV calculations when during the project life cycle inflation has different rates.
For example:
1) A project has 10000 of cash flows every year for 6 years and inflation for 1-2 years is 5% and for 3-4 years 6% and for 5th year it’s 8% and lastly for 6th year it’s 9%.
How can we estimate the inflation in each year?2) A project has 5 years of lifespan and its cash flows are 1000 for 1st year, 2000 for 2nd year, 5000 for 3rd year, 4000 for 4th year and 1500 for 5th year and inflation for 1-2 years is 5% and for 3-4 years 6% and for 5th year it’s 8%.
How can we estimate the inflation in each year?Please if someone can explain to me how to calculate these… Any help will be appreciated. Thanks
If you want me to answer then you must ask in the Ask the Tutor Forum – this forum is for students to help each other 🙂
However, I cannot understand what you are wanting, because you do not have to estimate the inflation rates – they are given in the questions you have typed!!
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