The Real Approach to Incorporating Inflation into the Net Present

question 81

Multiple Choice

The real approach to incorporating inflation into the net present value method predicts ________.

• A) cash inflows and outflows in real monetary units and uses a real rate as the required rate of return
• B) cash inflows and outflows in real monetary units and uses a nominal rate as the required rate of return
• C) cash inflows and outflows in nominal monetary units and uses a real rate as the required rate of return
• D) cash inflows and outflows in monetary units that are adjusted for inflation and uses a real rate as the required rate of return

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Definitions:

Return on Equity (ROE)

A measure of financial performance calculated by dividing net income by shareholders' equity, reflecting the profitability relative to the equity.

Return on Assets (ROA)

A financial ratio indicating how profitable a company is relative to its total assets, calculated as net income divided by total assets.

Discounted Payback

The period of time it takes for the cash flows from an investment to equal the initial cost of the investment, accounting for the time value of money.

Rate of Return

The improvement or reduction in the value of an investment within a specified interval, articulated as a percentage of the investment’s first cost.