Inflationary effects typically have a greater impact the larger the differences in the age of the assets of the firms being compared. Without adjustment, inflation tends to cause older firms (with older fixed assets) to appear more efficient and profitable than newer firms (with newer fixed assets).

Question

Quizplus · Accepted Answer

This statement is true. Inflation can cause older firms with older fixed assets to have a lower cost basis, resulting in higher profits and efficiency when compared to newer firms with newer fixed assets. Adjustments to account for inflation can help to level the playing field for comparisons between firms with different asset ages.

Inflationary Effects Typically Have a Greater Impact the Larger the Differences