The NPV value obtained by discounting nominal cash flows using the nominal discount rate is the same as the NPV value obtained by discounting
A)real cash flows using the real discount rate only.
B)real cash flows using the nominal discount rate only.
C)nominal cash flows using the real discount rate only.
D)real cash flows using the nominal discount rate and nominal cash flows using the real discount rate.

Question

Quizplus · Accepted Answer

The NPV value remains consistent whether you discount nominal cash flows with the nominal rate or real cash flows with the real rate, due to the Fisher Equation which links nominal and real rates. This ensures that the present value calculation is not affected by the choice between real and nominal terms.

The NPV Value Obtained by Discounting Nominal Cash Flows Using