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FinanceQ&A LibraryYearProject AProject B0 –$51,000 –$66,000 1 31,000 30,000 2 26,000 39,000 3 21,000 42,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 14 percent and the inflation rate is 5 percent. Calculate the NPV for each project. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Project A NPV:Project B NPV:Question

Asked Oct 28, 2019

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Year | Project A | Project B | ||

0 | –$ | 51,000 | –$ | 66,000 |

1 | 31,000 | 30,000 | ||

2 | 26,000 | 39,000 | ||

3 | 21,000 | 42,000 | ||

The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 14 percent and the inflation rate is 5 percent. |

Calculate the NPV for each project. |

Project A NPV:

Project B NPV:

Step 1

NPV refers to the net present value of a project or investment. The formula used to determine NPV of a project is:

Step 2

Step 3

Given that the cash flows of Project A are expressed in real terms, so we need to discount the cash flows of project A using the real rate.

Cash flows of Project B are expressed in...

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