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11(c) A project requires an immediate investment of $4 million. At the end of each one of the next five years , the investment will
11(c) A project requires an immediate investment of $4 million. At the end of each one of the next five years , the investment will generate cash inflows of $1.25 million. Assuming that these cash flows are in nominal terms and the nominal discount rate is 10.25%, calculate the NPV for the project. Now assume that that the expected inflation for each one of the next five years will be 5% per year. Recalculate the NPV of the project by discounting the real cash flows at the real discount rate. Compare your result with your previous
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