Simplified methods to determine the discount rate

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Reference no: EM132006108

A farm can invest $96,000, for expected nominal annual cash flows of $28,000 for five years (each coming at the end of Year 1 through Year 5). The expected inflation rate is 4% while the discount rate net of inflation is 10%. a. Calculate the real net cash flows. b. Calculate the real NPV of the investment, using both the exact and the simplified methods to determine the discount rate. c. Should the company invest? Briefly explain and justify.

Reference no: EM132006108

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