The nominal method is preferred to the real method for NPV analysis because:
I. Cash flows can be inflated at different rates
II. It includes a risk premium
III. It includes the risk-free rate
A) I only
B) I and II only
C) II only
D) II and III only

Question

Quizplus · Accepted Answer

The nominal method is preferred because it allows cash flows to be inflated at different rates, which is more realistic in scenarios where different components of cash flows are subject to different inflation rates.

The Nominal Method Is Preferred to the Real Method for NPV