When adjusting for inflation in a capital budgeting problem,which of the following items should be adjusted for inflation?

Question

Quizplus · Accepted Answer

Both the required rate of return and operating cash flows should be adjusted for inflation. The required rate of return should be adjusted to account for the time value of money and inflation. The operating cash flows should also be adjusted for inflation so that the real cash flows are considered in the analysis. Depreciation expense, on the other hand, is a non-cash expense and is not affected by inflation.

When Adjusting for Inflation in a Capital Budgeting Problem,which of the Following