Energy efficiency will help minimize operation and maintenance costs, improve productivity and generate real cash flows
Hideki Mori, World Bank Country Manager for Uzbekistan said that energy efficiency will help minimize operation and maintenance costs, improve productivity and generate real cash flows
Discuss the problem with using real cash flows
and a nominal WACC when calculating a project's NPV or IRR.
As such, they are best suited to corporate situations where stable real cash flows
are highly valued and yield is relatively less important, since the portfolio is almost certain to pay a premium to acquire the inflation protection.
To convert future cash flows to real cash flows they must be deflated by the general rate of inflation.
Thus real cash flows should be discounted at a real discount rate or nominal cash flows should be discounted at a nominal rate.
This would understate the reported NPV Table IV also shows that a further ten respondents (5 per cent) discounted real cash flows at a nominal discount rate (also understating NPV calculations) and 22 respondents (11 per cent) discounted nominal cash flows at a real discount rate (thus overstating NPVs).
In these circumstances real cash flows are derived by adjusting current cash flows by the specific rate of inflation and then deflating them using the general inflation rate.