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Hi everyone, can someone kindly help me with this problem?
Explain what would happen to the WACC and the NPV of a firm’s project if the country where the firm is based’s inflation rate were to unexpectedly increase. Why would these things happen?
Not sure exactly what you mean by this question. This question is not connected to the financial reporting paper. These topics WACC and NPV are examined in financial management and advanced financial management papers. Inflation, anticipated and unanticipated would also be studied in these papers. WACC and NPV are generally worked out before start of project. Therefore, analysis of returns will have been worked out before unexpected inflation came into play. A project will therefore give lower return than expected. Hope this is of some help. If not please ask more specific question or questions.