Is inflation double counted?
I was doing a mock exam where we inflated next year spending req. and then calc. req. return. Then the answer stated to add inflation again to get nominal after tax req. return. I feel like if we already increased spending for next year by inflation, would adding inflation again to get nominal pre tax return be double counting?
i.e.
current spending 100k, next year spending increase is 2% asset base of $5MM
next year spending is 100 x 1.02=102k 102k/5MM =2.04% + 2% (inflation)=4.04% nominal return.
IMO it seems like we’re double counting inflation? THoughts?