Question

. An investment requires an initial disbursement of € 2,500,000 and the duration of the project is 3 years, in the first of which it generates a cash flow of € 1,500,000, in the second € 3,700,000 and the third € 4,100,000.

1. Calculate the Net Present Value of the investment, knowing that inflation is 3% cumulative annually and that the required profitability in the absence of inflation is 8%.
2. Calculate the actual internal rate of return of the previous investment.

Answer 1

Inflation adjusted rate of return = [(1 +return )/(1 + Inflation)] - 1 = 1.08/1.03 - 1 =4.85%

a.