(Appendix 12A)Cash flows for a capital budgeting analysis are often affected by inflation, but not by deflation.

Question

Quizplus · Accepted Answer

Both inflation and deflation can affect cash flows for a capital budgeting analysis. Inflation increases the cost of inputs and decreases the purchasing power of cash inflows, while deflation decreases the cost of inputs and increases the purchasing power of cash inflows. Both of these factors can have significant impacts on the profitability of a project, so it is important to consider both inflation and deflation when conducting a capital budgeting analysis.

(Appendix 12A)Cash Flows for a Capital Budgeting Analysis Are Often