Consider the following cash flows on two mutually exclusive projects: Year............... Project A............ Project B 0..................... 2$30,000............

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Consider the following cash flows on two mutually exclusive projects:

Year............... Project A............ Project B

0..................... 2$30,000............ 2$45,000

1..................... ... 18,000............ ... 21,000

2..................... .. .16,000............ ... 23,000

3..................... .. . 12,000............ ... 25,000

The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 13 percent and the inflation rate is 4 percent. Which project should you choose?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Corporate Finance

ISBN: 978-0077861759

11th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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