Why May Worthwhile Investment Opportunities Be Rejected If Inflation Is

question 85

Multiple Choice

Why may worthwhile investment opportunities be rejected if inflation is ignored?

• A)Inflation effects generally increase estimated future cash flows, which increases the NPV and the likelihood of acceptance.
• B)The payback period for projects will be shorter than it would be if the future cash flow amounts were adjusted for inflation, which decreases the likelihood of acceptance.
• C)Inflation effects generally reduce future profits and operating cash flows making the NPV smaller than if inflation is ignored, which in turn decreases the likelihood of acceptance.
• D)Estimated future cash flows adjusted for inflation have larger NPVs, which increases the likelihood of rejection.

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