Question

Highland plc is planning to invest in a project. The Cash flows stated below are without allowing for inflation:

Timing Cash flows

                                      $

0 (1,500)

1 660

2 484

3 1064

The company’s cost of capital is 15%. The general rate of inflation is expected to remain constant at 5%.

Find NPV by:

a) Discounted money cash flows

b) Discounted real cash flows

c) Based in your findings, suggest whether the project should be accepted or no

Answer 1

The Solution is as follows;