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Hi,
I have 2 questions, please help ;-1. I am confused with “Note 7: All cash flows are stated in current prices and with the exception of the initial investments will occur at the end of each year.”
So, it didn’t mean that the investment will occur $1m each year from Y1 – Y6?2. How do I know that I need to calculate the discount rate? Can’t I just calculate the annual inflation every year and use the money cost of capital of 15.44% as my discount rate?
Please help me!
Many thanks!Peilin
1 If stated in current prices, eg development costs of $1m, the amounts actually paid will have to be inflated by 2 and 3 years respectively to get the actual cash flows (money)
2 Once cash flows are in actual money terms, you can apply the money cost of capital without further adjustment.
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