Question: Wallowitz has a long-term consulting contract with an engineering company that will pay him $75,000 per year for the next seven years; obviously, the contract

Wallowitz has a long-term consulting contract with an engineering company that will pay him $75,000 per year for the next seven years; obviously, the contract is negotiated in actual dollars. Inflation is estimated to be 1.35% yearly for the next 3 years, but after that, it is expected to be 1.85% yearly for at least the next decade. Wallowitz requires a real MARR of 7.75%.

a) What is the present worth of this contract? Round any calculated interest rate to four decimal places, i.e. 12.34% = 0.1234. (6 marks)

b) What is the Real AW of the contract spread over the seven years?

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