Question: Over the next four years the City of Inditiny Massachusetts
Over the next four years, the City of Inditiny, Massachusetts, is expecting the following cash flows from a federal grant: Year 1—$150,000; Year 2—$220,000; Year 3— $250,000; Year 4—$175,000. The city wants to use the grant as collateral for a loan, but it is unsure about its net present value. What is the net present value of the grant if the rate of return is expected to be 5 percent? What if the rate of return is expected to be 8 percent? Use Exhibit 26–3 for your solution.
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