Arjay, I have now established the following:
Real Rate of Cost of Borrowing
= nominal interest rate / inflation
= (1+Rate)/(1+Inf)-1
Real Growth Rate
= (1+nominal gross growth rate) / (1+inflation growth) - 1
Real Property Value Growth Rate
= (1 + Gross Growth Rate) / (1 + Inflation Rate) - 1
Previously, I was using 1+ (growth rate-inflation rate)
NPV can be calculated on nominal or real rates,and I still need some advice on which is best to use. If one is making cash flows with inflation affected dollars, then it is reasonable that those figures factor out inflation.
I am also pondering whether the outstanding loan principal should be held constant or devalued in today's $ terms.
Real Rate of Cost of Borrowing
= nominal interest rate / inflation
= (1+Rate)/(1+Inf)-1
Real Growth Rate
= (1+nominal gross growth rate) / (1+inflation growth) - 1
Real Property Value Growth Rate
= (1 + Gross Growth Rate) / (1 + Inflation Rate) - 1
Previously, I was using 1+ (growth rate-inflation rate)
NPV can be calculated on nominal or real rates,and I still need some advice on which is best to use. If one is making cash flows with inflation affected dollars, then it is reasonable that those figures factor out inflation.
I am also pondering whether the outstanding loan principal should be held constant or devalued in today's $ terms.