Global steel prices have a year-over-year inflationary rate increase of 15.4%. T

Question

Global steel prices have a year-over-year inflationary rate increase of 15.4%. Tube Fab purchased $800,000 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.

EOY

Then-Current Dollar Amount

Global steel prices have a year-over-year inflationary rate increase of 15.4%. Tube Fab purchased $800,000 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.

Explanation / Answer

Ans:

Then current dollar amount is the present value of the amount paid for purchase of same quantity of carbon steel.

Present value = cash flow / (1+r)^n

Table showing cash flow in each year

Table showing Then-Current Dollar Amount.

Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Cash flow $800,000 * (1.154) = $923200 $800,000 * (1.154)^2 = $1065372.8 $800,000 * (1.154)^3 =$1229440.2112 $800,000 * (1.154)^4 =$1418774.00372 $800,000 * (1.154)^5 =$1637265.2003

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