The real approach to incorporating inflation into the net present value method predicts ________.
A) cash inflows and outflows in real monetary units and uses a real rate as the required rate of return
B) cash inflows and outflows in real monetary units and uses a nominal rate as the required rate of return
C) cash inflows and outflows in nominal monetary units and uses a real rate as the required rate of return
D) cash inflows and outflows in monetary units that are adjusted for inflation and uses a real rate as the required rate of return

Question

Quizplus · Accepted Answer

The real approach to incorporating inflation into the net present value method predicts cash inflows and outflows in monetary units that are adjusted for inflation and uses a real rate as the required rate of return. This approach ensures that the cash flows are expressed in real terms, accounting for the effects of inflation, and that the required rate of return is also adjusted for inflation. This results in a more accurate estimation of the project's profitability and helps in making better investment decisions.

The Real Approach to Incorporating Inflation into the Net Present