Final answer:
To find the NPV, enter the given cash flows and interest rate into a financial calculator. Calculate NPV using the NPV function, reflecting the present value of future cash flows discounted at a 9.5% interest rate. These present value concepts can be applied to real-world scenarios, such as GDP growth calculations.
Step-by-step explanation:
The question involves calculating the Net Present Value (NPV) using a financial calculator with the provided cash flows and interest rate. To find the NPV, you enter the cash flows CF0 = 0, CF1 = 1.2650, CF2 = 1.4548, CF3 = 52.33983 into the calculator and set the interest rate (I/YR) to 9.5%. Then, you calculate NPV using the calculator's NPV function. The result will be the present value of these future cash flows discounted at the interest rate of 9.5%.
To use this information in practical scenarios, such as calculating the value of GDP in terms of future value and present value, we apply growth rates over n periods. For example, if the present value is $1.67 trillion and the growth rate is 2.8%, the future value after five years can be calculated using the formula 1.67 × (1+0.028)5 resulting in $1.92 trillion. This demonstrates how the concept of present and future values applies to economic indicators like GDP.
When analyzing investments, it's essential to account for different time periods separately, as future cash flows are discounted to present values using a discount rate which reflects the expected profits and the opportunity cost of capital, in this case, a 9.5% interest rate.