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Determining the net present value

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A company is evaluating a new project. The initial investment will be $500,000. Sales in year 1 are expected to be $200,000 and costs $100,000. Both are expected to increase at 10% per year, in line with in?ation. Pro?ts are taxed at 35%. The project will last 5 years, and the investment will have no value at the end of the 5th year. The property will be depreciated by straight line (not MACRS) for tax purposes over these 5 years. If the nominal discount rate is 15%, show that the net present value is the same whether calculated using real cash flows or nominal cash ?ows.

Reference no: EM133075060

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