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consider the following cash flows on two nut

CHAPTER 6 Making Capital Investment Decisions 199 15. Capital Budgeting with Inflation exclusive projects: Consider the following cash flows on two mutually Year Project A -$30,000 18,000 16,000 12,000 Project B $45,000 21,000 23,000 25,000 0 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 13 percent and the inflation rate is 4 percent. Which project should you choose?
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Home nert Page Layout Formulas Data Review View dd-Ins Cut Copy Σ AutoSum ー E ゴWrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Alignment Number Cells Edting H103 101 102 103 104 105 106 107 108 109 110 NOMINAL CASHFLOWS SHOULD BE DISCOUNTED WITH NOMINAL RATE REAL CASHFLOWS SHOULD BE DISCOUNTED WITH REAL RATE REAL RATE (1+NOMINAL RATE)/(1+INFLATION RATE) -1 REAL RATE (1 +0.13)/(1+0.04) -1- 8.6538% PV FACTOR AT 8.6538% PV FACTOR AT 13% PV OF CF PROJECTA P R PV OF CF PROJECT B Q s NOTE ON PV FACTOR 8.6538% YEAR PROJECT A PROJECT B 112 113 114 115 116 45000 21000 23000 25000 1/(1+0.06538)A0 1/(1+0.06538)A1 1/(1+0.06538)42 1/(1+0.06538)A3 0 18000 16000 12000 0.9204 0.8471 0.7796 1 -30000.00 -45000.00 0.8850 16566.37 18584.07 0.7831 13552.82 18012.37 0.6931 9355.05 17326.25 9474.24 8922.70 NPV 118 119 (4 AS NPV IS HIGHER FOR PROJECT A, IT IS TO BE SELECTED | YTC , NPV 3 ASSETS NPV | real dat . allocation amorti LOAN OPTIONS . SPLIT VALUE OF SHARE . HPR REAL RETURN (EPS BEST PLAN EAC HIGH LOW . Sheet1 , 16-01-2019

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