Nominal rate of return
Nominal rate of return, rn, is the rate that includes an inflation adjustment (premium). Thus, if nominal rates of return are used in the capital budgeting process, then the net cash flows must also be nominal.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Nominal rate of return, rn. Includes an inflation adjustment (premium). Thus, if nominal rates of return are used in the capital budgeting process, then the net cash flows must also be nominal.
According to Cost Accounting by Horngren, Datar, Rajan (14th edition),
- Nominal rate of return. Made up of three elements: (a) a riskfree element when there is no expected inflation, (b) a businessrisk element, and (c) an inflation element.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
