Short Answer Essay Instructions: Answer each question on you are answering the q

Question

Short Answer Essay Instructions: Answer each question on you are answering the question asked - think about which material it isrrin sure in the space provided. Make to before (4 pts) Why is it true, in general, that a failure to adjust biases the calculated NPV downward? Explain fully 8. ed inflation expected cash flows for expect 9. (4 pts) What are some of the difficulties that might come up wit approach to making investment decisions? Why do they occur might you avoid these issues? Leave this space blank

Explanation / Answer

8. Adjusting the expected future cash flows is utmost necessary in order to calculate the NPV of any project. The cash flows which are estimated in the upcoming years need to be adjusted for inflation and if we do that the cash flows would become on the higher side which would result in more realistic and higher NPV of any project.

9. The main issue of using the IRR approach is that at times it gives us the conflicting results when compared with NPV for mutually exclusive projects. Also the multiple IRR isse is a big challenge to address which using the IRR approach. We cab solve this problem by using the MIRR (Modified Internal Rate of Return) method.

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