A problem question with inflation is given and residual asset value say at the end of n years is specified.
Do we always assume that it is already inflated so we can use it as it is in calculating depreciation at project end?
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8y ago#1No - it depends on the wording of the question!
Ok sir, but the inflated value is the right one to use.
Is this right?
8y ago#3It is the actual cash receipt that we should use. If you are given sale proceeds at current prices then you need to inflate it to get the actual cash proceeds.
(The only exception is when you are specifically asked to use the real cash flows (i.e. without inflation), and to discount at the real cost of capital, but this is rarely asked.)
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