Multiply the EBITDA--which Rust calls "the nominal cash flow
of the business"--by a factor between 3.5 and 6.5, he says.
First, the coupon payment for the conventional Treasury security, C, in the first term of equation (8), is a nominal cash flow
that investors expect will compensate them for inflation via the Fisher hypothesis (and potentially for the taxation of inflation under the Darby and Feldstein framework).
Reduction of the nominal cash flows
(income) will fuel economic slowdown, reduce business activities, tighten the debt problem gradually creating a banking crisis, says the economist.
This makes it a little tougher to match inflation-adjusted cash flows as efficiently as we matched the nominal cash flows
A conventional bond's nominal cash flows
are known in advance, so the nominal yield-to-maturity is calculated easily.
Thus real cash flows should be discounted at a real discount rate or nominal cash flows
should be discounted at a nominal rate.