We will limit our discussion to the simple nominal approach. Consider an investment that is expected to generate sales of 100 units and a net cash inflow of $1,000 ($10 per unit ) each year for 2 year absent inflation. Assume cash flows occur at the end of each year. If inflation of 10% is expected each year, net cash inflows from the sale of each unit would be $11 ($10 x 1.10 ) in year 1 and $12.10 ($11x 1.10 , or $10 x (1.10)2 ) in year 2 , resulting in net cash inflows of $1,100 in year 1 and $1,210 in year 2. The effects of inflation. Nominal cash flows are the cash flows that are recorded in the accounting system. The cash inflows of $1,000 each year are real cash flows. The accounting system does not record these cash flows from accounting systems and nominal rates of return from financial markets.