Cost of capital basics

You discount the nominal (actual) cash flows at the nominal (actual) cost of capital. (You only use the real rate if discounting the current price cash flows i.e. the flows ignoring inflation - this is only relevant when discounting inflating perpetuities) It will help you to watch the PM (old F9) lectures on investment appraisal with inflation because this is revision of Paper PM - I explain how and why, with examples.