To estimate project value, FCF should be computed atreal values, i.e., stripped of inflationnominal values, i.e., inflation rate includedeither nominal or real values--it will make no difference

Step 1 The income that an organization receives after a cash outflow is called a free cash flow. It…

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To estimate project value, FCF should be computed at

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 3Q: Why is it true, in general, that a failure to adjust expected cash flows for expected inflation...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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To estimate project value, FCF should be computed at
real values, i.e., stripped of inflation
nominal values, i.e., inflation rate included
either nominal or real values--it will make no difference

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