Melisa plans to launch a tech company at the beginning of 2022. Her firm is expected to earn $130,000 in cash, annually. This cash flow will take place at the end of the calendar years (i.e., 31 December 2022, 31 December 2023, and so on). Melisa expects cash flow to keep up with any future price hikes., meaning that the earnings will be adjusted upwards in the rate of inflation. The current nominal interest rate in the market is 6.6 percent, and the expected inflation rate for the upcoming years is 2.6 percent. Assume that we are currently on January 1st, 2022.

a. Calculate the present value of cash flows that Melisa's tech company generates for years 1 through 5? Year 1 corresponds to the year 2022.

b. How would your calculations change in part (a) if the expected future inflation rate were zero?

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a Calculate the present value of cash flows that Melisas tech company ge... View the full answer