CFAI MockAM Q43 therefore, income, impact, adjusted

JonnyKay

When calculating inflation adjusted cash flows from nominal to real why won't we leave the depreciation and fixed income cost alone? Weren't these cost incurred on a 'fixed' cost base therefore inflation rate over years wont impact them?

wxs1986

Check the errata published. The answer should have been option B, instead of A.

busterbluth

This is the AM exam question not PM, your feedback will be appreciated.

firat

big question - why wouldn't inflation make a difference to them?

they were bought in the past, at historic cost, that is all good. but if you tried to buy them today - wouldn't on going inflatoin have affected their prices? If you bought them today - wouldn;t you use a higher discount rate?

That is why you need to calculate them with the inflation index.

CP