Question: a . Assume that inflation is expected to average 5 percent per year over the next 4 years. Does it appear that the project s

a. Assume that inflation is expected to average 5 percent per year over the next 4 years. Does it appear that the projects cash flow estimates are real or nominal? That is, are they stated in constant (current year) dollars, or has inflation been built into the cash flow estimates? (Hint: Nominal cash flows include the effects of inflation, but real cash flows do not.)
b. Is the 10 percent cost of capital a nominal or a real rate?
c. Is the current NPV biased, and, if so, in what direction?

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