Return on Software: Maximizing the Return on Your Software Investment

Mr. Kinkaid's Adventure in Actual and Constant Dollars

Assuming that the net cash-flow stream for Mr. Kinkaid's proposed venture (Table 8.2 in Chapter 8) is in actual dollar terms, it can be used as an example of converting a cash-flow stream from actual dollars to constant dollars. Using 6.5% as the average annual inflation rate for the 7 years of the study, Table 13.3 shows the actual dollar cash-flow stream converted to constant dollars in year 0 (beginning of the planning horizon) terms.

Table 13.3. Converting Mr. Kinkaid's Actual Dollar Net Cash-Flow Stream to Constant Dollars

Year	Actual Dollar Net Cash-Flow Stream	Inflation Conversion (P/F,6.5,n)	Constant Dollar Net Cash-Flow Stream
0	$0	0.9390	$0
1	–$3421	0.8817	–$3016
2	–$2671	0.8278	–$2211
3	$329	0.7773 ...