Question
Arya Co. is considering the following two independent projects. The cash flows for project A are expressed in nominal terms, while those of project B
Arya Co. is considering the following two independent projects. The cash flows for project A are expressed in nominal terms, while those of project B are expressed in real terms. The appropriate nominal discount rate is 8%, and the inflation rate is 3%. Using the exact Fisher equation, calculate the real discount rate. (Enter percentages as decimals and round to 4 decimals).
| Year | Project A | Project B |
| 0 | -100,000 | -75,000 |
| 1 | 25,000 | 25,000 |
| 2 | 25,000 | 25,000 |
| 3 | 40,000 | 25,000 |
| 4 | 40,000 | 25,000 |
| 5 | 42,000 | 25,000 |
Q1 calculate the real discount rate. (Enter percentages as decimals and round to 4 decimals).
Q2calculate the NPV of project A. (Round to 2 decimals)
Q3 calculate the NPV for project B. (Round to 2 decimals)
Q4
Based on the information provided, the firm should:
| Year | Project A | Project B |
| 0 | -100,000 | -75,000 |
| 1 | 25,000 | 25,000 |
| 2 | 25,000 | 25,000 |
| 3 | 40,000 | 25,000 |
| 4 | 40,000 | 25,000 |
| 5 | 40,000 | 25,000 |
accept both
accept A, reject B
reject both
reject A, accept B
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