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A company has a capital project with before-tax cash inflows in real dollars that are expected to be $200,000 within 2 years. The inflation rate is expected to be 6% each year during that period. What is the before-tax cash inflow expressed in nominal dollars

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abiolataiwo2015

The before-tax cash inflow expressed in nominal dollars is $224,720

Using this formula

Before-tax cash inflow=Before-tax cash inflows in real dollars*(1+Inflation rate)*(1+Inflation rate)

Let plug in the formula

Before-tax cash inflow=$200,000*(1+.06)*(1+0.06)

Before-tax cash inflow=$200,000*1.06*1.06

Before-tax cash inflow=$212,000*1.06

Before-tax cash inflow=$224,720

Inconclusion the before-tax cash inflow expressed in nominal dollars is $224,720

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