If the discount rate is stated in nominal 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 ignoring inflation.

Question

Quizplus · Accepted Answer

If the discount rate is stated in nominal terms, it includes inflation. Therefore, to calculate NPV in a consistent manner, cash flows must also be estimated in nominal terms to ensure that they include the effects of inflation.

If the Discount Rate Is Stated in Nominal Terms, Then