I got a negative NPV.  Is this what everyone else is getting?

[NEAS: In practice, the expected NPV of projects is zero.  Firms have some projects with positive NPV's and some with negative NPV's.  The final exam problems often have negative NPV's.]

I also got a negative NPV, but in the "Illustrative Test Questions..." Exercise 5.6 they seem to treat the same problem as reversed CF's.  I don't know why they do this, it does not make sense.  The only way this would seem valid is from the viewpoint of the borrower. 

[NEAS: Exercise 5.6 is the same concept as the homework problem, with different figures.]

I got a positive NPV, I take the initial investment CF to occur at time 0, then each positive CF as occur at time 1, 2, and 3 respectively. I discount the positive CF using real discount rate to arrive at an answer of 1350.81 I could be interpreting the problem wrong because I've never encountered the use of "year 0" before.

[NEAS: If the cash flows are in nominal dollars, we use the nominal dollar discount rate.]

The crux of the homework is distinguishing between nominal and real cash flows/discount rates.

The cash flows given are nominal. Thus, we use the nominal discount rate and obtain a negative answer.

[NEAS: Correct]

I got a negative PV as well. The wording is very similar to exercise 5.6 which has nominal cash flows and gives a real discount rate with the inflation rate. All of these are in the HW problem and the problem asks for the same thing. The solution uses the nominal cash flows with the nominal discount rate.

[NEAS: Correct]

Jacob: Is it common for the discount rate to be in real dollars and the cash flows to be in nominal dollars?