A company is considering investing in a project which requires an initial investment of
£150,000. The cash inflows during years 1–3 are expected to be £55,000 per annum. The
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company’s monetary cost of capital is 10 per cent and inflation is expected to be 6 per cent
during the life of the project.
(i) Calculate the NPV of the project using the real rate of return as the discount rate.
(ii) Calculate the NPV of the project using the monetary cost of capital as the discount rate.
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