what's the influence of unexpected inflation to NPV

[June2010]

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?

 

[skillionaire]

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

 

[bpdulog]

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

 

[bannisja]

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.

 

[June2010]

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

 

[the show NY]

the real reason is that it lowers your depreciation tax shield

 

[kochunni69]

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

 

[bpdulog]

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