How to account for inflation in project evaluation?

How to account for inflation in project evaluation?

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Inflation is a phenomenon that results in decrease in purchasing power of money and increase in the nominal value of revenue (i.e. cash inflows) and expenses (cash outflow). Since the net present value is mostly calculated for project with duration of more than one year, the drop in purchasing power due to inflation is significant. It is important to correctly reflect this phenomenon in the capital budgeting process.

jeff jeffy answered 1 year ago

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