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Hello SIR.
While answering the NPV question in the exam, I was not given a discount factor for the question but I had given general inflation of 5% while the real return [I forget the %] was also given. Could you please tell me how to calculate the discount factor from such information?
I do explain this in my free lectures!!!
To get the actual/nominal cost of capital you use the Fisher formula that is provided on the formal sheet.
1+ i = (1 + r) (1 + h) where i is the nominal cost of capital, r is the real cost of capital, and h is the rate of inflation.
You then get the discount factor from the tables for that discount rate.
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Okay! But to get the discount factor, the question has to state the real cost of capital with the rate of inflation [question mentioned general & specific inflation, which one to choose?]
Please correct me that real cost of capital is the return that investors want & the difference between general & specific inflation is that specific inflation is related to different variables but general inflation is I don’t know [so please mention that]?
It is the general rate of inflation that we use.
Have you watched the free lectures?
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I am also looking for that lecture. Please send me the link SIR
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