Nominal and Real Cost

The real cash flows are the nominal cash flows with the general rate of inflation removed.Discounting the nominal flows at the nominal cost of capital will give the same result as discounting the real flows at the real cost of capital (although we only do it the second way if the question specifically asks for it, or if it is a perpetuity).

Hello John, Thank you for your answer. Why do we need both of them if they give the same answer? Thanks

We don't unless the question asks for both (as one past exam question did).

Dear Sir I think since tax benefit from TAD is not affected by inflation, NPV resulted by 2 approach will be different ? Thank you

No it will not be different. If the general inflation is removed from the nominal flows (including the tax flows) and these real flows are then discounted at the real cost of capital, the result will be the same.

Do you mean that it will always be the same ?

Yes. Look at Q32 from the March/June 2019 sample questions.

But Q1 in Dec2013, it is not same.Please help me to explain.

If you look at the examiners note as to the alternative approach, that is the same. That is the approach that the examiner now seems to prefer.