Answer to Question #229011 in Finance for hmo

Question #229011

List in (bullet points) the process you would follow when attempting an inflation and risk adjusted NPV

analysis. This includes cash flow identification and possible adjustments to cash

flows; also outline the most accurate discount rate to use.


1
Expert's answer
2021-08-25T17:05:59-0400

NPV analysis takes into account future expectations of cost and revenue. It is go by substracting risk free rate of return from the market of return.

cash flows

  • cash flows contain inflation effects.
  • Nominal cash flow is discounted t nominal discount rate.

Discount rate

  • interest rate is subject to risks
  • discount rate must consider risk like investment and adjust it.

it is better to use discount rate because interest rate has effect to the money supply in the economy


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