7-8 Inflation INFLATION RULE DBe consistent in how you handle inflation yUse nominal interest rates to discount nominal cash flows SUse real interest rates to discount real cash flows S You will get the same results, whether you use nominal or real figures Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 7- 8 Irwin/McGraw-Hill Inflation INFLATION RULE Be consistent in how you handle inflation!! Use nominal interest rates to discount nominal cash flows. Use real interest rates to discount real cash flows. You will get the same results, whether you use nominal or real figures