Response to the following problem:
Upper Division of Lower Company acquired an asset with a cost of $600,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows:
Year Cash Flow
1 $225,000
2 255,000
3 285,000
4 300,000
The cost of the asset is expected to increase at a rate of 10 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes.