Question
Consider the following cash flows on two mutually exclusive projects. Year Project A Project B 0 -54,000 -64,000 1 26,000 29,000 2 32,000 38,000 3
Consider the following cash flows on two mutually exclusive projects.
| Year | Project A | Project B |
| 0 | -54,000 | -64,000 |
| 1 | 26,000 | 29,000 |
| 2 | 32,000 | 38,000 |
| 3 | 19,000 | 23,000 |
The cash flows of Project A are expressed in real terms which 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?
Please show step by step calculations so I can see how you obtained the answer. Including any formulas you use.
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Financial Management Core Concepts
Authors: Raymond Brooks
4th Edition
134730417, 134730410, 978-0134730417
