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Real cost of capital 8%. Inflation 5%. Can you pls explain how to get nominal rate of 13.4%?.thks
You should use fishers equation , known as (1+nominal rate)=(1+ real rate)x(1+inflation rate)
In this case just put in the numbers (1+ i)=(1+0.08)(1+0.05) you should be able to get i =0.134 which is 13.4%Thanks a lot kenzo. But how can I calculate the real cost of capital of a firm without a given inflation rate?
An illustration is given below.
A labour saving machine cost #60000 and will sell #24000 per annum at current wage rate. The machine expected a 3years life with no scrap value. The firms cost of capital is 10%, calculate the project npv with no inflation.. Thanks.
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