Inflation and COC

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December 1, 2019 at 6:15 pm #554348
aliahmed1994
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can inflation be higher than cost of capital? suppose cashflows were 5000 pa. and coc was 10% and inflation 6%
what will be the effect if inflation goes 12%?
December 1, 2019 at 7:12 pm #554356
John Moffat
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No.

Although the rate of inflation on specific items could certainly be higher, then general rate of inflation (which is what the actual cost of capital is affected by) will never be higher than the cost of capital – either in real life, or (more importantly) in exams.
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