Question

Global steel prices have a year-over-year inflationary rate increase of 12.4%. Tube Fab purchased $700,000 of a particular carbon steel during the year just ended right now, and they intend to purchase the same quantity at the end of each of the next 5 years. Tube Fab earns a real rate of 16% on their money. a.) Determine the then-current amounts they will pay for steel at the end of each of the next 5 years. b.) Determine the constant value amounts they will pay for steel at the end of each of the next 5 years. c.) Determine Tube Fab’s PW of expenditures over the next 5 years using then-current dollars. d.) Determine Tube Fab’s PW of expenditures over the next 5 years using constant-value dollars

Answer 1

Step-by-step explanation:

b. Using constant dollar aproach we will not consider inflation rate into the account and thus, they will pay the same account each year that is $700.000.

c. Now we need to find the present worth of expenditure over the next five year using the 'current approach'. We will take inflation and real interest rate into the account and thus, will use combined rate of return in order to calculate the present worth PW.

Check the calculations in the attached images.

d. Check the calculations in the attached images.