Consider the following cash flows on two mutually exclusive projects: The cash flows of Project A are

Question:

Consider the following cash flows on two mutually exclusive projects:

YEAR PROJECT A PROJECT B -$67,000 -$74,000 34,000 34,000 45,000 37,000 3 23,000 29,000

The cash flows of Project A are expressed in real terms while those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 4 percent. Which project should you choose?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...