We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%. The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions: f. What are the real net present values of Project A and Project B? (Hint: The real NPV should be the same as the nominal NPV.)
We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%. The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions: f. What are the real net present values of Project A and Project B? (Hint: The real NPV should be the same as the nominal NPV.)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 7P: Your division is considering two investment projects, each of which requires an up-front expenditure...
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A3 5 f
5. We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of
The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions:
f. What are the real
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