good evening.

i would have a question about NPV.

as known, this can be computed in nominal values (nominal cash flows and nominal discount rate) or in real values (real inflation adjusted cash flows and real discount rate).

now, in general the results of the two computation should be the same.

however, i am having some difficulties with an exercise, and the two results are different.

i suppose this can be explained because of depreciation.

indeed, while revenues and operating costs can be adjusted according to the specific situation we are considering, depreciation ends to be the same in both case.

i'll report a simple example:

REVENUES 1= 110

REVENUES 2=121

REVENUES 3=133.1

these are the revenues, in nominal terms, which reflect an inflation of 10%.

the same for costs:

COST1=50

COST2=55

COST3=60.5

to transform these values into real ones, we just need to "deflate" them and we will get:

REVENUES1=REVENUES2=REVENUES3= 100

COST1=COST2=COST3=45,45

now, assuming a nominal discount rate of 15% (and a consequent real discount rate of 4,5%), the NPV in the two cases turn to be the same, around 150 in both cases (i did not consider the taxation here but also considering it the result is the same).

Now, assuming that at year 0 i am making an investment of 30, with a depreciation of 10 per each of the three years, the things changes. if I make all the calculation of the Cash Flows (revenues-costs-depreciation-taxes+depreciation and so on) the NPV are in the end different.

is it normal that in this case the two NPV (nominal and real case) end to be different?

or instead am I missing something?

please help me, it's for an urgent assignments