The firms real cost of capital is forecast to be 10% in year 1 and projected to increase by 2.5% each year. What is the nominal discount rate?

 

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PROJECT NPV (in thousands of $) Key Assumptions Unit Sales Inflation Rate Real Cost of Capital Tax Rate Year 0 ($130,000) Initial Investment Salvage Value Discounting Nominal Discount Rate = Cost of Capital Cumulative Discount Factor Year 1 7500 1.50% 10.0% 39.0% 11.65% 0.0% 11.65% Year 2 10125 1.50% #NAME? 39.0% Year 3 13669 1.50% #NAME? 39.0% #NAME? #NAME? #NAME? #NAME? Year 4 18453 1.50% #NAME? 39.0% #NAME? #NAME? PROJECT NPV (in thousands of $) Key Assumptions Unit Sales Inflation Rate Real Cost of Capital Tax Rate Year 0 ($130,000) Initial Investment Salvage Value Discounting Nominal Discount Rate = Cost of Capital Cumulative Discount Factor Year 1 7500 1.50% 10.0% 39.0% 11.65% 0.0% 11.65% Year 2 10125 1.50% #NAME? 39.0% Year 3 13669 1.50% #NAME? 39.0% #NAME? #NAME? #NAME? #NAME? Year 4 18453 1.50% #NAME? 39.0% #NAME? #NAME?

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The nominal discount rate can be calculated using the Fisher equation which relates the real interes... View the full answer