what's the influence of unexpected inflation to NPV

CFA Level II
#1

it’s obvious that inflaiton will decrease profitability, but does it also decrease NPV? NPV is calculated by cash flow discounted at a pre-fixed rate, there’s no inflation in the formula. How come inflation will decrease NPV?

#2

Inflation would increase your required rate that you’re discounting the cash flows with, homeboy.

#3

NPV goes down if unexpected inflation > expected inflation. That is what the book says, and I’m going by that.

#4

decreases NPV if you think your project is worth X dollars, but suddenly X dollars due to inflation is only worth maybe 3/4’s as much… it’s going to hurt your real NPV.

#5

Thanks I know it’ll hurt real NPV, only I was sticking to the formula

#6

the real reason is that it lowers your depreciation tax shield

#7

Does this ralete to the flow through rate? If you can pass the burdon of inflation to the customer, does it affect NPV. I think it doesn’t

#8

kochunni69 Wrote: ------------------------------------------------------- > Does this ralete to the flow through rate? > > If you can pass the burdon of inflation to the > customer, does it affect NPV. I think it doesn’t That is Equity SS10 or SS11