Financial Statements Why bother calculating both? Well, when you take out ination (i.e., convert from "nominal dollars" into "real dollars") the price difference becomes much more comparable and easy to explain. See Appendix A on page 271 for more details. Rates are measured in percentages and with an associated time period (for exam- ple, 5% per year). The period could be a month or a day or even continuous. Some interesting rates are ination rate, interest rate, discount rate, and hurdle rate. Specialized rates include internal rate of return, risk premium and return on in- vestment. Details follow. Capital Budgeting In capital budgeting, different projects require different investment and will have different returns over time. In order to compare projects "apples to apples" and "oranges to oranges" on a nancial basis, we will need to convert their cash ows into a common and comparable form. That common form is present value. Simply put, a little bit of cash that is invested today followed by lots of cash re- turned in the near future would be a really good nancial investment. However, lots of cash invested today followed by a little bit of cash returned in a long time would be a really bad investment. Capital budgeting analysis is as simple as that. All the complex net present value (NPV) and internal rate of return (IRR) calculations are just details. Nevertheless, details can be important, so let's continue.