Is inflation important in calculating net present value and internal rate of return? Why or why not?

Select one:

a. Inflation is an important consideration for long-lived projects and their alternatives, but it is already implicitly accounted for in all variables used to determine net present value and internal rate of return.

b. Inflation is important because it increases cost and product price, but these increases cancel each other out. Therefore, inflation does not need to be accounted for in net present value and internal rate of return calculations.

c. Inflation is important because the market cost of capital (debt and equity) includes the inflation effect. Consequently, the other variables in net present value and internal rate of return calculations need to be adjusted for inflation.

d. Inflation is not important because inflation rates of 2-3% are too slight and well within the error margin of sales and revenue predictions and cost estimates. Consequently, inflation does not need to be accounted for net present value and internal rate of return calculations.