Nominal or real cash flows should give different net present values if the expected rate of inflation used to convert future cash flows to real terms is the same inflation rate used to estimate the real discount rate.

Question

Quizplus · Accepted Answer

The net present value (NPV) should be the same whether using nominal or real cash flows, as long as the inflation rate used to adjust future cash flows is consistent with the inflation rate used to estimate the real discount rate. This is because the adjustment for inflation in both the cash flows and the discount rate should offset each other, leading to the same NPV result.

Nominal or Real Cash Flows Should Give Different Net Present