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5 Escalated and Constant Dollars
5 Escalated and Constant Dollars
246
Chapter 5: Escalated and Constant Dollars
247
lnflation
Supply/Demand
r.:
Technological Changed :
T'he importance of cost and price escalation and the pyramiding effect
it
can have on the escalation of investment costs and revenues has been
driven
honic forcefully to investment decision makers around the world in the
i970's and 1980's. Examples are innumerable. To cite one, in 1969 tire
Alaskan pipeline was esrimated to have a cost of $900 million while in
1977
the final cost estimate w,as close to $g biliion, or about agoavo escalation
iiorn the initial estimate. Certainly not all of this cost escalation rvas due to
inilatron. sLrpplyidernand cffects on rabor and materials and other factors
such as environnrental and engineering changes caused very significant
cscalarion of the project costs. Fortunateil,, crude oil price escalirtion prior
to the 1986 price decline rvas sufficient to cover the escalated costs. This
exatnple helps emphasize the vcry signilicant differences berween inflaticn
raies and escalation ri.tes and that in econonric elaluarion u,ork rve are
con_
cerned 'uvith the effects of escalation of costs and revenues rather than
infla-
tion effects alone. Hou,ever. int-ration often iias such a siguificant effect on
escalation rates for specific goods and services that we should digress
and
discuss some of the causes and effects of inf'lation before later proceeding
to
present two explicit approaches for handling inflation and escalation
prop-
erly in economic analyses.
Literally millions of words have been written on the subject of inflation
in tlre past decade. we discussed in cliapter 2 that 6zo compound interest
u'ill double capital in twelve years but have you thought about the fact that
6%' inflation will cut the purchasing po*er of currency in half in tu,elve
years'l The sarne compound interesl factors that work fbr us with
savings
apply inversely when accounting for the effect of inflation on purchasing
power. who benefits and rvho gets hurt mosr by inflation? There is no
firm
answer to this question but generally individuals and governments with
large amounts of borrowed money benefit to some aegiee from inflation
because they are able to pay off their debt with inflated future dollars
that
have lower purchasin-e power than the dolrars originally borrowed.
on the
248 Economic Evaluation and lnvestment Decision Methods
other hand people on fixed incomes with little or no debt clearly are hurt by
inflation because the purchasing power of their in9.n$9 gI capital decreases
each year approximately proportional to the annual inflation rate. It is nec-
essary to discuss.how inflation rates are derived to anrplifythe meaning of
the last stiltement.
As previously mentioned, in most countries the quoted inflation rate is
derived from the change in an index, made up of the weighted average of
prices for a "basket of goods and services." In the United States, the broadest
measure of this index is known as the Consumer Price Index or CPI. As cur-
rently defined the CPI can be broken down into 8 major categories including
food and beverages, housing, apparel, transportation, medical care, recreation,
education and other items including the cost of hair cuts, cosmetics and bank
fees. Approximately 80,000 items in total may be surveyed each month. The.
CPI may be calculated regionally or by other socio-economic parameters. The
later categories include an index for all Urban Consumers known as the CPI-U
and a similar index for all Wage Eamers known as the CPI-W. A survey of the
buying habits of more than 29,A00 families in these different categories forms
the basis for the items selected each month. For more information check out
the Bureau of Labor Statistics website at http://stats.bls.gov/cpihome.htm.
It is important to note that an increase in the level of one price, or group
of prices does not constitute inflation. If the prices of crude oil, iron ore,
and uranium rise while the prices of automobiles, wheat and beef fall, we
can not be certain whether there has been inflation. In other words, it may
not be certain whether the average level of prices has risen or fallen. Lower
prices in one set of goods may have offset higher prices of other. An
increase in the price of one individual commodity is just that, an individual
price increase. It may be due to inflation, excess demand or short supply or
a combination of both. This further emphasizes why in economic evaluation
work that escalation of costs and revenues for specific goods and services is
relevant to the analysis rather than a given inflation rate.
Even if inflation is dirninished tc l7a to 17a levels over an extended period
of time, different financial instruments such as indexed bonds and the more tra-
ditional non-indexed variety do exist in the financial marketplace today and
require unique consideration to make a proper economic comparison. Further,
although escalated dollar evaluations are the most common approach we find
utilized in the United States, some U.S. companies and many foreign compa-
nies prefer to utilize constant dollars. Therefore, it is important to understand
how inflation can influence project evaluations and the various assumptions
that investors make on this subject.
Chapter 5: Escalated and Constant Dollars
249
There are two basic evaluation tecrmiqttes that can be used with
equal
ualidity to handle inJlation and escalation properly in economic
analyses.
Tht.t are escalated doLlar analy'sis and cansrant rJollar analysis.
The eco-
nornic conclusions that are reached are always identical with either
appi.)ach. Escalateci tiollar values refer to actual tlollars of reventte
or cost
tiicti will be realizetl or incLtrred at specificfuture poittts irt tinte.
Elsewhere
in tita literarure yott find escalated dollars ;"eferred to by the tenns crffrent
aL.,iitit's, ir{lcted dollars, nominar doilars, cmd dollars i7 tlr"
day. corrstant
dollur v-alues refer to hypothetical constant purchaiing power dollars
obtained by discounting escarated doilar values at the inflii)n rate
to some
arbitrary point in time, which often is the time that corresponds to the
beginnilry of a project but may be any poini in time. Constait doilars qre
referred to as real dollars or deflated dollars in many places
in the litera-
ture. Figure 5-2 relates the definitions of escalated dollars and
constant dol_
lars to a variation of Figure 5-1 used earlier to illustrate how
inflation and
escalation are related.
lnflation
SupplyiDemand
Technological Changes
Constant Market Changes
Dollar Escalated Dollar
Environmental Effects Items
Items
Political Effects
lu4iscellaneous Effects
constant dollar analysis advocates take the point of view that since esca-
lated dollars have different purchasing power at different points in
time it is
necessary to convert all dollar values to some hypothetical
constant purchas_
ing power value before making an economic anaiysis. constant dollir
analy-
sis is a valid analysis approach but it is no bettei than making the analyiis
directly in terms of escaiated dollars and the constant dollai calculations
require extra work and chance for error. It must be remembered that
the pur-
pose of economic analysis is to compare alternative opportunities
for the
investment of capital to select the investment alternatives that will
maximize
the future profit that can be accumulated at some future point in
time. If you
stop to think about it, the alternatives that will maximize your future profit
in
escalated dollars must be exactly the same alternatives that will
maximize
your future profit expressed in terms of constant purchasing power
dollars
250 Economic Evaluation and lnvestment Decision Methods
referenced to some earlier date. The key to proper analysis and consistent,
corect economic evaluation eonclusions lies in recognizing,that you cannot
nrix escalated dollar analyses and constant dollar analyses. To do so is analo-
qous to comparing apples and oranges. You must eithercornpare'all alterna-
tives using escalated dollars or you must compare all altematives using con-
stant dollars; and you must remember that the minimum ROR must be
expressed in relation to other escalated dollar investment opportunities for
escalated dollar analyses while the minimum rate of return must be
expressed in relation to other constant dollar investment opportunities for
constant dollar analysis. A very common constant dollar analysis mistake is
for an evaluator to calculate constant dollar rate of return for a project and
then compare it to other escalated dollar investment opportunities such as a
btrnk interest rate, attainable bond interest rates or another escalated dollar
ROR opportunity.
Consider how escalated and constant dollar estimates for costs and reve-
nues are obtained. The evaluatirrn of projects starts by estimating project
costs and revenues in today's prices or values. This establishes what the
project costs and revenues would be if the project occurred today. Next,
since projects do not occur instantaneously, the today's dollar values are
adjusted to project the actual or escalated values that will be realized. If the
increase can be described on a percentage basis, single payment compound
arllount factors, (F/P1,n) can be used to determine the actual value antici-
prted at the future point in time. The escalation rate is used as a substitute
value for i. This approach is utilized in many text examples, but may not be
appropriate in actual evaluations depending on the forecasting techniques
utilized. Also note, if you think values may decline, negative escalation
rates might also be used. The actual values anticipated to be realized over
the prolect life form the basis for the escalated dollar evaluation.
N4any investors choose to utilize the anticipated inflation over future
vears as an approximation for escalation. This is one forecast of the future,
but there is no reason evaluations cannot be based on as many separate esca-
lation or de-escalation rates as there are parameters that make up the model.
Curnmodity prices, the price for construction equipment, steel, concrete,
labor and energy to name a f'ew, may not move in direct correlation with the
rilte of inflation. The use of inflation as a proxy for escalation is addressed
in more detail later in the chapter concerning the use of today's dollar values
in evaluations.
If a constant dollar analysis is desired, the escalated dollar cash flows for a
pro.iect must be adjusted to have the anticipated intlation removed from each
Chapter 5: Escaleted and Conslant Dollars
ac1
value o'er the proiect life. Remember. that escalation includes inflation.
Inflation can be removed from escalated dolrar.cash,flows
by murtiprying
each escalated ritirrar varue by trre singre payrnent
present worth factor
rate .,fl roi tn" nu*b., otferiods needed
(P/F1.n), at the assumed inf'lation
to t,r'ing each value to its cqui'elent constant purch:rsing
po*"..
Note that escalation rates and inflation rates are trearecr jusr
rike com-
pound interest rates. As prel'iously indicated,
this means t"hat ttre factor,
(F7l'e.n) r'vhere e represents the arnnual rate
of escalation, and (p/F1,n) where
f represents the annual rate of inflation can be utilized in the same
manner
but for different objectives than accounting for the
time value of money.
. so, if the selling price of a product *u. $zoo per unit this year (today,s
dollen value is $260) and the varue was expected
to escarate 5.|va nextyear,
the actual selling price one year from today would
be:
gold was $420 per ounce. In mid 2000 the price had fallen to $275 per
ounce. That translates into an annual price decline of. 4.LVo per year (nega-
tive escalation) over 10 years. During that same period, U.S. inflattn
(as measured by the CPI) averaged approximately 3.OVo pelyear. Had gold
increased in value at the rate of inflation, the value in 2000 would have been.
t.3439
$420(FlP3Eo,10) = $564 per ounce
Instead, the actual price dropped to $275 per ounce and the correspond-
ing constant dollar equivalent price of gold (in terms of 1990 base year
dollars) dropped as well to:
0.7441
$275(P83o7o,10) = $205 per ounce
It is worth noting that the term "constant purchasing power" has nothing
to do with the price remaining constant each year. Instead, it has to do with
the relative purchasing power of that money over time, If the price of gold
had actually escalated 3.0Vo per year so it just covered inflation, the real
purchasing power of the ounce of gold would still be $420. Obviously more
than inflation is influencing the price of gold and other parameters that
make up our economic evaluation models.
Finally, it is aiso important to note that inflation can have the same
impact on interest rates as that just described in terms of cash flow or the
price of a product. Further, discount rates are influenced irr the same manner
as is introduced in Example 5-l:
Consider the following investment analysis example to illustrate how
today's dollar values are the starting basis to get both escalated dollar values
and constant dollar values and the corresponding rates of return.
Solution:
Net
Escalate Escalated Discount Present
Today's $ Using F/P",n Dollars Using P/F;.,6 Value
t-
I e=escalationrate Discount Discount
I f=inflationrate Using P/F1,n
I i' = escalated $ discount rate Using P/F;*,,n .
A) Assume year l development cost will escalate 7"/" per year. year
2 and 3 revenues wiil escarare gr" per year. operating';;i.
escarate go/o per year. Mako escatateo c"rrrr ' ili
B) "nlv.]..
the part (A)_escaration assumptions an*given
.For escarated dor-
lar minimum RoR of 1s"h, make constant doilar
anarysis of the
project for assumed infration or 6"r. per year
over the project rife.
c) use the given today's dollar cost and revenue estimates
to evaru-
ate the pi'oject and discuss the impricit escaration
and infration
rate assumptions involved.
'1.188
1.295
OC=Zg1p/pn 2O(F/pg"/",3)_el
"/o,2)=EJ9
co=20 Cl=40(F/Pl"n i=42.8 Net Rev =57.86
=62.3
P /F
1 S"/",2 = 0.7561 = (p lF 6"7o,2) p /F a.qg6,Z)
= (0.8900X0.8496) = 0.7561
constant $ RoR = 34.41a; this is the "i" var0e that
makes constant
cjoliar net present value equal to zero.
g4.4"'o > i* 8.49o/o,
= aqgepi the prOject
C) Today's Dollar Anatysis
Using today's doilars as the basis for evaruation carcurations
.involves one of two different assumptions. Eithei yo, that
today's doilars equar escarated doriar vaiues "rrrre that
o,, you assume
today's dollars equar constant dofiar varues (see
Ex. 5-1a and s-1b),
Today's Dollars Equal Escatated Doltars
Assuming that'today's coilars equar escarated
doilars expricitry
assumes that costs and revenues in the future
will be the same ai
tiiey wouid be ioday. This implicifly involves tne assumption
that cc_cts
and revenues wiil escaiate at oi/" per year over the
evaruation rife.
This is an escalated doiiar assumption simiiar to,
but different fr-orn the
pai't "A" assumptions, so an escaraterj doila:
minimum RoR must i:e
used in NPV carcurations and for RoR anarysis
decisions. The
"today's doliar varues equar escarated
doilar varues,, ,nrrvai, foilows:
I'JPV = -20 - 4O(,PlF1S"/",1) +
'
SO(p/FlS,t",2)+ S0(p/F1
S"/"5)
= +15.9 > 0 accept
ROR = 32.2% > i" = 157o, accept
Note these escalated dollar NpV and RoR results
are significanily
different frorn the part "A" escalated dollar analysis
results. There are
an unlimited number of different ways that esiarateci
costs and rev_
enues can be projected. Assuming today's doilars
are equar to esca-
iated dollars is just one specific eslalation assumption.
lt is
to understand specific escaration assumptions used in important
anaryses
because they v,,ill affect evaluation results.
A variation of the today's doilar equar escarated
doilars assumption
is to escalate ail capitar costs (such as acquisition
and deveropment
costs) at specified rates and to assume that the escalated
dollar net
revenues or profits in the income generating years
wiil equar today,s
dollar net revenues or profits. rnis is often cailed ,,the
washout
262 Economic Evaluation and lnvestment Decision Methods
Note the today's dollars equal escalated dollars NpV result is sig-
nificantly different from the today's dollars equal constant dollars
NPV result. Although the RoR results are 32.2/o for both cases, dif-
ferent minimum rates of return are used for the economic
decision
with RoR in the two cases. These two today's dollar analysis cases
are very differeht and can lead to different investment decisions.
obviously, understanding the escalated dollar or constant dollar infla-
tion and escalation assumptions being made is very important for
correct economic decision making.
Chapter 5: Escalated and Constant Dollars 263
(A)c--too
012
(B) CC = 60 aC =72
Soiution:
-
Escalated Dollar PW Cost Analysis
1) for i* = 307o, remembering P/F1.,n = (1/1+i.)n
PW4 = 'lQg
PWB = 60(1/1 .3) + 72(111.3)2 = 88.75, Select "8"
2) tor i" = 20"h
Ptll4 =
1gg
PWB = 60(1/1 .2) +72(111.2)2 = 1OO
(A) c =.
012t
OC = AOP|IZOW,| OC = Z2(PlFZot ,Z')
(B) - =50 =50
Ji
Cnaprer 5: Escalated and Consiant Doiiars 265
select "A"
for escalated dollar analysis. However, for those evaluation people who
.want to make constant dollar analysis rather than escalated dollar analysis,
.i
the following steps should be fbllo*ed:
1) Determine the escalated dollar values for all project costs &rd revenues.
2) Convert all escalated dollar values to the corresponding constant dollar
values for the assumed inflation rates each year.
3) Convert the escalated dollar minimum ROR, "i*", to the corresponding
constant dollar value, "i*"', if the minimurnROR is initially expressed
in terms of escalated dollars.
4) Calculate constant dollar NfV using i*', or calculate constant dollar
ROR, "i"', and compare to i* for the economic decision.
One situation that can give constant dollar analysis a potential intangible
advantage over escalated dollar analysis is in evaluation of a project to
determine and negotiate the break-even selling price that a purchaser may
be u'illing to pay for a product. Since in inflationary times a given constant
dollar minimum rate of return is always less than the equivalent escalated
dollar minimum rate of return. it may be easier to convince a buyer to
accept paying the price needed for you to ger a l57o constant dollar ROR
than a higher but equivalent escalated dollar ROR for a given rate of infla-
tiorr. This is a potential marketing or negotiation advantage rather than an
economic analysis advantage. The following example shows that break-
even analysis economic calculations (such as break-even selling price) will
be exactly the same with either rscalated dollar analysis or constant dollar
analysis.
These rates are all usetl in the foilowing example illustrating general
escalated and constant dollar analysis calculations involving different
esca-
iation rates a:,d infla: ioil ratcs each y:i:r.
+
EXAMPLE 5-5 RoR and Npv Anatysis with changing Escatation
and lnflation Rates Each year
A cost of $100,000 today is projected to generate today,s dollar
incomes of $75,000 per year at the end of eaoh of years 1, e and 3
with today's dollar operating costs of $25,000 per year at years 1, 2
and 3. saivage value is zero at year 3. lncomes and operating costs
are projected to escalate 10% in year 1 , 1z/o in year 2, and 1s"1" in
year 3, so net income minus operating cost escalates at the same
given rate each year. calculate the prolect escalated dollar RoR and
NPV assuming the minimum RoR for each of the 3 years is 15% in
escalated doilars. Then assume inflation rates will be 10% in year 1,
8'A in year 2 and 6% in year 3, and calculate constant dollar RoR
and NPV.
Solution:
Today's Doliar Values (ln Thousands of Doltars)
1 .100 1 .120
Net 12 = 50(F/Pt g"/",iF|P12./",i = 61.60
lr'henever project costs and revenues involve more than one currency,
e \ciran-qe rates must be projected fbr each evaltration period to perrnit analysis
of the project in terms of one currency. Economic analysis reiults tend to be
very sensitive to exchange rate projections. In general, exchange rate changes
often reflect current changes (or perceived tuture changes) in relative inflation
rates between countries. However, this is not always the case. Differences in
country interest rates and balance of pal,nrent deficits can be major factors
that affect exchanse rares. In 1995 the U.S. clollar declined l57o to z\vo
against btrth the Jnp:rnese yen anrJ the Cennun mark alrhough U.S. inflation
rvas relatively lorv at 3Lh per year or less. usnally however, devaluation of a
country cuffency a!,ainst the U.S. dollar, Japenese yen, or European curren-
cies is caused by current or projected future inflation rate differences between
the countries. Therelbre, exchange rate projections often implicitly account
for future inllation effects on escalated dollar analysis. The following exam-
ple illustrates the mechanics of handling exchange rates in cash flow analysis
as rvell as the sensitivity of evaluation results to exchange rate effects.
272 Economic Evaluation and lnvestment Decision Methods
Solutions:
Case A) U.S. Doltars Analysis
19,990 uniisiyr ($0.06iunit) =
$600 revenue/yr
-10,000 unitsiyr ($0.0ilunit) = _$.t00 operatlng cosVyr
Before-Tax Cash Flow/yr $500 +
= $400 Salvage atyear 2
-$1,000 $500 $500+$400 Satv.
ROR = 23.11"/"
NPV @ 10"/" = $198.05 U.S.
ROR = 23.11"/"
NPV@ 10%- lg,Bg5ZUnits
Case C)
-Country Z Currency Analysis
With Exchange Rate Changes
Year 0 100 Z Units = $1.0 U.S.
Year 1 150 Z Units = $1.0 u.s.
Year 2 Z2S Z Units $1.0 U.S.
=
Z Currency Unit Cash Flow:
274 Economic Evaluation and lnvestment Decision Methods
Year 012
Revenue 90,000* 225,0a0
-Operating Costs
-Capital Costs -100,000
Cash Flow -100,000 +75,00O +202,500
. $600 U.S.(1502 Units / $1.00 U.S.) = 90,0002 Units
**-$100 U.S.(1502 Units /
$1.00 U.S.) = -15,0002 Units
ROR = 84.667"
NPV @ 1Oo/o = 135,537 Z Units
The devaluation effects have worked for the investor and given bet-
ter economic results for the assumption that revenue escalates pro-
portional to devaluation. This would relate to an export project such
as mining or oil and gas production project where product is sold
internationally in U.S. dollar prices. Often it is very difficult or impos-
sible to pass on to dornestic consumers price escalation due to cur-
rency devaluation effects. The domestic consumer may not have the
financial means to pay higher prices. Case D shows that this
assumption gives very different economic results.
These results are economically less desirable than the "no devalu-
ation" Case B results, because devaluation is assumed to negatively
affect operating costs but to have no off-setting positive effect on rev-
enue. When leveraged money is involved, currency devaluation can
have much greater effects as the following two cases show.These
cases relate to borrowed money analysis considerations introduced
Chapter 5: Escalated and Constant Dollars
This leveraged RoR result is much betier than the 29.11% RoR
tor cash investment case B. However, note the NpV for case B is
ti:re same as for case E because the cost of borrowed money which
is the 10% interest rate is the same as the 10% opportunity cost of
capital minimum discount rate.
- Capital Costs
-100,000
Leveraged CF -20,000 +3,000 -71,000
276 Economic Evaluation and lnvestment Decision Methods
PROBLEMS
5-1 Consider the following ,,today,s dollar,,
cash flows
Rer,-600
C=I00 C=200 OC=100
I=$200,000 I=$200,000
Co=$5o,ooo C1=$150,000 OC=$100,000 OC=$100,000
o 1 2............5
A) Evaluate the project escalated dollar RoR if both capital cosrs and
operating costs are estimated to escalate at l|vo per year from time
zero with income escalating at l\Vo per year.
B) Make constant dollar RoR Analysis of case 'A" assuming the rate
of inflation for the next 5 years will be t\Vo per year.
c) use escalated dollar RoR Analysis to analyze the investment
assuming a washout of escalation of income and operating costs
with a l\Vo escalation of capital costs in year one.
5-4 A product that sells today for $100 per unit is expected to escalate
in
price by 6vo in year one, 8vo in year two and,lovoln y"a. three. calcu- It
iate the escalated dollar year three product selling price. If inflation is
expected to be 5vo in year one, gvo in year two and 12vo in year three,
determine the year three constant dollar product selling price.
5-6 Determine the break-even escarated dolrar selling price per unit
required in each of years one and two to achieve a 15% constant dollar
project RoR, assumtng a 12vo per year inflation rate. AI clor;"r varues
are today's dollar values.
Sales=$1116661 Sales=$X(1000)
C=$10081
___99=$50,000 OC=$50,000
Selling price escalation is l\va per year from time zero when selling
price is $X per unit. operating cost (oc) escalation is r5vo per
from time 0. 1,000 units are to be produced artd sold each year.
lear
Chapter 5: Escalated and Constant Dollars
279
5-7 what can be paid now (today) ro acquire a property that will be devel-
oped 2 years from now and which engineeri .rii-ut"
wilr have today,s
dollar costs and revenues shown on th. forlowing time
diagram. All
values are in thousands of today,s dollars.
Case 2. Make the anarysis using the today's dollar costs and revenues
assuming they represent consrant dollar values. (This
assump_
tion is valid if you assume that all capitai costs, operating
costs
and revenues will escalate at the same rate of inflation
each
year. Discounting these escalated dollar values
at the same rate
of inflation to get constant dollar values gives the original
today's dollar values for this assumption.)
case 3. use escalared doilar anarysis assuming capital cost (c) escara-
tion will be rzvo per year, operating cost (oc) escararion
wi, be
10Vo per year and revenue (Rev) escalation will be lOTcper year.
Case 4. Make constant dolar analysis for trre Case 3 escaiation
assumption assuming 7Vo inflation as given.
case 5. use the escarated dolrar analysis assuming capital costs esca-
late at l2%o per year and escalation oioperating costs
is
exactly offset by a like-dollar escalation of reveiues each
year which gives uniform profit margins each year.
This com_
monly is called.,the washout assumption,,.
Economic Evaluaticin and lnvestment Decision Methods
5-8 An investor has paid $100,000 for a machine that is estimated to produce
5000 product units pe1 year for each of the next three years when the
machine is estimated to be obsolete with a zero salvage value. The prod-
uct price is the 'unknown' to be calculated; so it is estimated to be $x per
unit in year one escalated dollars and to increase l}Vo per year in year
two and 67o inyear three. Total operating costs are estimated to be $8000
in year one escalated dollars and to increase l5%o in year two andS%o rn
year three. The annual inflation rate is estimated tobe77o. What must be
the year one, two and three escalated dollar product selling price if the
investor is to receive a L2Vo annually compounded constant dollar ROR
on invested dollars?
5-10 The following time diagram before-tax cash flows are today's dollar
values. The investor has a constant dollar minimum rate of return of
1.0.0Vo and annual inflation is forecasted to be 3.0Vo over the project
life beginning in year 1. All values are in millions.
A) Assuming the rate of escalation for all cash flows is equal to the
inflation rate, calculate the escalated dollar project NPV and ROR.
I
I
I
,