General Studies · Capital Budgeting
A company is preparing an NPV calculation for a project where the cash flows and the discount rate are nominal. If the company used a real discount rate instead, what effect would this have on the project's calculated NPV?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The calculated NPV would remain identical, provided that all future cash flows exclude inflation, regardless of the discount rate used.
- 2The calculated NPV would remain identical, provided that the real cash flows are used with the real discount rate.✓
- 3The calculated NPV would be higher than the nominal NPV, as the real discount rate is generally lower than the nominal rate.
- 4The calculated NPV would be lower than the nominal NPV, as the real discount rate is generally higher than the nominal rate.
Correct answer
The calculated NPV would remain identical, provided that the real cash flows are used with the real discount rate.
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