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In answer , they derived the terminal value of property by inflating it with the real rate.So my doubt is shouldnt we inflate it by nominal rate because we are discounting cashflows by nominal rate.I mean if we use real rate for terminal value then we should use real rate to discount the cashflows too right ?
I know that the wording of the question is a bit confusing, but the actual rate of inflation applicable to the building is 8% which is what they have used.
(There is no such thing as a ‘real rate of inflation’)Hi Sir,
Question on acquisitions and mergers. Pricut Inc
Part c how do I solve the equation 29.50 = 100/(1+r)to the power 10
This has nothing at all to do with Blipton!
You must start a new thread when you are asking about something different.Your question really is rather basic algebra.
If 29.50 = 100 / (1+r)^10
Then 29.50 x (1+r)^10 = 100
So (1+r)^10 = 100/29.50 = 3.3898
Therefore 1+r = 10th root of 3.3898(Alternatively you could use the discount factor tables. 1/(1+r)^10 = 29.50/100 = 0.2950
1/(1+r)^10 is the 10 year discount factor at r per year.
So you can look in the tables and see what rate of interest (r) ends up giving a 10 year discount factor equal to 0.2950)
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