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Why is it NOT necessary to adjust the required return for expected inflation when evaluating capital investments in an inflationary environment? Explain

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Why is it NOT necessary to adjust the required return for expected inflation when evaluating capital investments in an inflationary environment? Explain

Answered Same Day Dec 25, 2021

Solution

David answered on Dec 25 2021
132 Votes
With regards to capital budgeting decisions, it is not essential to adjust the required return for
inflation as the underlying discount rate used for evaluation of the project takes into
consideration the nominal interest rates which tend to reflect the impact of inflation. Also, in
an...
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