If the discount rate is stated in real terms, then in order to calculate the NPV in a consistent manner, the project requires that
A)cash flows be estimated in nominal terms.
B)cash flows be estimated in real terms.
C)accounting income be used.
D)cash flows be estimated including future inflation.

Question

Quizplus · Accepted Answer

If the discount rate is stated in real terms, then the cash flows must also be estimated in real terms in order to calculate the NPV consistently. This ensures that inflation is not double-counted in the cash flows and discount rate.

If the Discount Rate Is Stated in Real Terms, Then