If the Discount Rate Is Stated in Real Terms, Then

question 9

Multiple Choice

If the discount rate is stated in real terms, then in order to calculate the NPV in a consistent manner requires that project:
I. cash flows be estimated in nominal terms
II. cash flows be estimated in real terms
III. accounting income be used

• A) I only
• B) II only
• C) III only
• D) None of the above

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Definitions:

Sales

The total amount of goods or services sold by a company within a specific period, generating revenue.

Traceable Fixed Expenses

Fixed costs that can be directly linked to a specific business segment, department, or product and would disappear if the segment was eliminated.

Variable Expenses

Costs that change in proportion to business activity or production volume, such as materials costs, direct labor, and utilities for machinery.

Minimum Required Rate Of Return

The lowest acceptable return on an investment, used as a benchmark for evaluating potential investments.