Capital Budgeting with Inflatio n Consider the following cash flows on two mutually exclusive projects:

Year Project A Project B 0 2$50,000 2$65,000 1 30,000 29,000 2 25,000 38,000 3 20,000 41,000 The cash flows of project A are expressed in real terms, whereas those of project B are expressed in nominal terms. The appropriate nominal discount rate is 13 percent and the inflation rate is 4 percent. Which project should you choose?