Why is it important to take into account the effect of inflation in forecasting the cash flows?

Your case report must include an executive summary(maximum 150 words) outlining key issues, methods of analysis andrecommendation. The main body of the report must be no shorter than 10pages and no longer than 20 pages, single spaced. The main body shouldcomprise:ExecutiveSummary – Identify the key problem and summarize the key issuesin 1-5 sentences;Introduction/Backgroundinformation – include relevant facts and issues on company.Competitors, industryFinancialAnalyses – Assume that you are Joan Hamilton. Provide answersbased on both qualitative and quantitative analyses to the following:CalculateVEC’s WACC using the data in Exhibit 1.Calculatethe project’s cash flows using the data in ExhibitWhyis it important to take into account the effect of inflation inforecasting the cash flows? Briefly comment.Evaluatethe profitability of the project with the NPV, IRR, MIRR, simple paybackperiod, and discounted payback period methods. Is the project acceptable?Briefly explain. Why is the NPV method superior to the other methods ofcapital budgeting? Briefly explain.Conductthe stand-alone risk analysis of the project with the sensitivityanalysis and scenario analysis techniques. Explain why sensitivityanalysis and scenario analysis can be useful tools in the capitalbudgeting decision-making process when economic and financial conditionsare likely to change in the future.Recommendation/Solution –Provideone justifiable and realistic solution to the problem; explain the reasonsbehind the proposed solution; support this solution with justification andinclude relevant theoretical concepts as well as the results of yourresearch.Figures and tables could be placed in an appendix at the endof the paper but preferably incorporated in the body where appropriate.All figures and tables must be numbered and all pages, including pages withtables and figures must be numbered.Task:Reviewthe Case Variety Enterprises Corporation: Capital Budgeting DecisionSubmityour case report.Reviewthe grading criteria.

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