Sir i am bit confused that while calculation asset replacement cost do we use nominal or real cost of capital please explain with reason.
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asset replacement decision
3y ago#1It is the normal rule (as explained in our free lectures on inflation).
If the flows are given at current prices then we use the real cost of capital.
If the flows are given at actual prices (with no mention of inflation, as is more likely to be the case in exam replacement questions) then we use the nominal (actual) cost of capital.
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