sir , iwant to ask why in june 13 q 1 npv (real cost)
why they only deflate using general inflation ? why didnt calculate again without inflation and thn real cost rate
june 13 NPV- real cost
10y ago#1Do note that calculations for part (b) are not required.
The real rate only 'works' assuming that all flows inflate at the same general rate of inflation. That is why when there are different rates of inflation, we use the nominal cash flows and the nominal cost of capital.