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(Solved): 2- A self-employed chemical engineer is on contract with a large multinational chemical company, cur ...



2- A self-employed chemical engineer is on contract with a large multinational chemical company, currently working in a relatively high-inflationary country in Central America. She wishes to calculate a project’s PW with estimated costs of USD 35000 now and USD 7000 per year for five years beginning 1 year from now with increases of 12% per year thereafter for the next 8 years. Use a real interest rate of 15% per year to make the calculations (a) without an adjustment for inflation, and (b) considering inflation at a rate of 11% per year.

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(a) Without an adjustment for inflation: To calculate the present worth of the project without an adjustment for inflation, we need to use the nominal interest rate, which is the real interest rate plus the inflation rate. In this case, the nominal interest rate is 15% + 0% = 15%. The present worth (PW) can be calculated as f...
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