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We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%.                                              The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions:    f. What are the real net present values of Project A and Project B? (Hint: The real NPV should be the same as the nominal NPV.)

We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%.                                              The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions:    f. What are the real net present values of Project A and Project B? (Hint: The real NPV should be the same as the nominal NPV.)

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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5. We have two independent and mutually exclusive projects, A and B. Project A requires an initial investment of $1500, and will yield $800 of cash inflows for the next three years. Project B requires an initial investment of $5000, and will yield $1,500 of cash inflows for the next five years. The required return on each project is 10%.                                             

The cash flows and required return given are all in nominal terms. Given that the inflation rate is 3%, answer the following questions:   

f. What are the real net present values of Project A and Project B? (Hint: The real NPV should be the same as the nominal NPV.)                   

                 

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