Suppose the firm's required rate of return is stated in nominal terms,but the project's expected cash flows are expressed in real dollars.In this situation,other things held constant,the calculated NPV would
A) Be correct.
B) Be biased downward.
C) Be biased upward.
D) Possibly have a bias,but it could be upward or downward.
E) More information is needed;otherwise,we can make no reasonable statement.

Question

Quizplus · Accepted Answer

If the firm's required rate of return is stated in nominal terms,but the project's expected cash flows are expressed in real dollars, the calculated NPV would be biased downward. This is because the nominal rate includes an inflation premium that is not accounted for in the real cash flows. As a result, the calculated NPV would undervalue the project's true worth.

Suppose the Firm's Required Rate of Return Is Stated in Nominal