Suppose the firm's WACC is stated in nominal terms, but the project's expected cash flows are expressed in real dollars. In this situation, other things held constant, the calculated NPV would
Click on the arrows to vote for the correct answer
A. B. C. D. E.D
Given the fact that there is inflation, a cost of capital stated in nominal terms would understate the calculated NPV. If inflation is expected, but this expectation is not built into the forecasted cash flows, then the calculated NPV will be downward biased.