In order to compensate for inflation in capital budgeting procedures, it is necessary to:
A)use constant dollar estimates of costs and revenues
B)use a low discount rate to avoid double counting for inflationary effects
C)rely heavily on the payback procedures
D)none of these

Question

Quizplus · Accepted Answer

Inflation should be accounted for by using nominal cash flows and a nominal discount rate, not by using constant dollars or a low discount rate.

In Order to Compensate for Inflation in Capital Budgeting Procedures