YearProject 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. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

 

 

Project A NPV:

Project B NPV:

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Expert Answer

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
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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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