When adjusting for inflation, there are two methods. The real- rate method where the discount rate is adjusted for inflation and the nominal approach, where real cash flows are adjusted to nominal cash flows. What is the primary drawback of the real-rate approach? a. It is more cumbersome to calculate. b. Depreciation deductions are adjusted for inflation. c. There are no drawbacks.
When adjusting for inflation, there are two methods. The real- rate method where the discount rate is adjusted for inflation and the nominal approach, where real cash flows are adjusted to nominal cash flows. What is the primary drawback of the real-rate approach? a. It is more cumbersome to calculate. b. Depreciation deductions are adjusted for inflation. c. There are no drawbacks.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 3Q: Why is it true, in general, that a failure to adjust expected cash flows for expected inflation...
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When adjusting for inflation, there are two methods. The real- rate method where the discount rate is adjusted for inflation and the nominal approach, where real cash flows are adjusted to nominal cash flows. What is the primary drawback of the real-rate approach?
a.
It is more cumbersome to calculate.
b.
c.
There are no drawbacks.
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