Inflation and Depreciation question

Discussion in 'Exams and Studying' started by Excelmonkey, Jan 12, 2019.

  1. Excelmonkey


    Jun 15, 2018
    Likes Received:
    I'm currently practicing an NPV question and one of the things I've never really understood is why, if you are calculating the cashflows adjusted for inflation, why you don't have to calculate the depreciation adjusted for inflation? Or even the sale value of the asset adjusted for depreciation?

    Sure this is a stupid question but it's always made me think in exams.
    Excelmonkey, Jan 12, 2019
    1. Advertisements

  2. Excelmonkey

    kirby VIP Member

    May 12, 2011
    Likes Received:
    Your cash flows are affected by inflation. The depreciation expense is not a cash outflow of the future (asset was already paid for in the past).
    Depreciation does not further affect the sale value of the asset. The asset sells based on market value. For example, assume you bought a computer and depreciated it fully. Then it is identified as a collectors item and you sell it for a fortune.
    kirby, Jan 13, 2019 at 2:41 AM
    Becky likes this.
    1. Advertisements

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.