Why Is It Fairly Easy to Fall into the Trap

question 116

Multiple Choice

Why is it fairly easy to fall into the trap of discounting real cash flows with nominal rates?

• A) It is difficult to determine real discount rates.
• B) Increases in nominal cash flows are often not forecast.
• C) Inflation does not impact cash flows, but it does impact discount rates.
• D) Increases in revenues are offset by increases in costs.

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Definitions:

Other Receivable

Accounts receivable that do not fit standard trade transactions, sometimes including loans to employees or advances to suppliers.

Notes Receivable

Claims against others for money, goods, or services evidenced by notes, promises to pay, or receipts.

Bad Debt Expense

An expense recognized by businesses for accounts receivable that are not expected to be collected.

Credit Basis

The terms and conditions under which credit is extended by a lender to a borrower, including repayment schedules and interest rates.