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Sir can you tell me when to use which discount factor in this equation mentioned above the cost of capital or real cost of capital?
If we are using actual cash flows (as is usually the case in the exam) then we use the actual cost of capital.
If we are using the real cash flows (I.e. the cash flows without inflation) then we use the real cost of capital.I explain this in my free lectures on investment appraisal. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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