Problem 1 An investment related to developing a new product is estimated to have the following costs and revenues in "today's" or "time zero" dollars. -50,000 0 -150,000 1 220,000 -120,000

2 220,000 -120,000 5 a. Evaluate the project escalated dollar ROR if all costs are estimated to escalate at 15% per year from time zero with income escalating at 10% per year. b. Make constant dollar ROR analysis of part (a) based on the prediction that the inflation rate for the next five years will be 3% per year. c. Calculate the escalated dollar NPV assuming 15% of hurdle rate.