... expected from projects where the risk appears as being higher and thus how large the risk premium must be. * Inflation- A general increase in the prices of goods and services in a country, which needs to be compensated to the investors for the loss of interest and purchasing power if the investment is to be made. This would be on top of a return that takes into account the returns that could have gained from an alternative investment of similar risk. When evaluating real investment, we will have an expectation of cash flows over time. In NPV, we use the discount rate on the basis for the minimum return we will accept. If the NPV is positive, we accept the project, and if the NPV is negative, we reject the project. IRR is quite closely related to the NPV method since it also involves discounting future cash flows. When applied ...

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