Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 238

Dealing with Inflation

! In our analysis, we used nominal dollars and Bt. Would the NPV have been

different if we had used real cash flows instead of nominal cash flows?

a) It would be much lower, since real cash flows are lower than nominal cash flows

b) It would be much higher

c) It should be unaffected

Again, the answer is no. The discount rate will be lower, but so will the expected

growth rate and cash flows.