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Inflation means tomorrow’s money is worth less; it impacts cashflows more when they are further out. When the cost of money is near-zero, today’s values of nea
by jpau 5y ago
Inflation means tomorrow’s money is worth less; it impacts cashflows more when they are further out.
When the cost of money is near-zero, today’s values of near and distant cashflows are similar. When the cost is high, they are very different.
I’m not sure if you mean in your question that a project shown to track inflation will be unaffected. This is somewhat true — we see this in inflation-adjusted bonds etc. But inflation is far from a uniform effect, and I’ve never seen a pitch include inflation in its estimates…
- fshbbdssbbgdd 5y agoInflation means prices are increasing. Your company probably gets more revenue when prices go up. Whether you come out ahead will depend on a lot of factors - what kind of inputs you have, how much pricing power, etc. But you can’t just discount your cash flows by the inflation rate unless you also incorporate the increased revenue into your estimate of the cash flows.
- nanis 5y agoWhy do you think the stock market indexes are crashing as inflationary expectations are being entrenched?