The working capital of the firm rises during the initial years of the project but falls by the end of the project. Interest rates get affected due to inflation and the real interest rates are always less than the nominal rates due to inflation. 1+ Nominal interest rate = (1+ real interest rate) X (1+ Inflation rate) By rearranging the above equation, we get Real interest rate = -1 Nominal cash flow is the actual cash flow received or paid...
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While discounting, consistency has to be maintained. That is, Nominal cash flows must be discounted at the nominal rates. Real cash flows must be discounted at the real rates. While comparing between two projects of unequal lives, equivalent annual cost of the projects has to be used. In this method, the present value of the costs is converted into annuity payments for duration equal to the life of the project...
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STATEMENT OF CASH FLOWS Instead of starting with a reported net income, the direct method analyzes the various types of operating activities and calculates the total cash flow created by each one...	2 / 312
Cash Flow This will help in the overall efficiency. References Student Resources: Statement of Cash Flows. (1998). Retrieved May 14, 2004 from the World Wide Web, http://www...	2 / 308
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