In evaluating an investment, a manager forecasts cash flows to increase 2 percent in real terms over

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In evaluating an investment, a manager forecasts cash flows to increase 2 percent in real terms over the life of the project. There is little or no uncertainty associated with these cash flows. Thus, the manager believes they should be discounted at a risk-free rate of return. The current treasury bill rate is 6 percent; therefore, the manager uses this rate for discounting. Is the manager's approach correct? Provide a short critique.

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Managerial Economics

ISBN: 9781119554912

5th Edition

Authors: William F. Samuelson, Stephen G. Marks

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