Inflation, Investment and Valuation

Cornell Bradford (), Gerger Richard (), Jarrell Gregg A. () and Canessa James L. ()
Additional contact information
Cornell Bradford: Emeritus Professor of Finance, Anderson Graduate School of Management, UCLA, Los Angeles, CA, USA
Gerger Richard: Cornell/Gerger, Los Angeles, CA, USA
Jarrell Gregg A.: Emeritus Professor of Finance and Economics, Simon Business School, University of Rochester, Rochester, NY, USA
Canessa James L.: Forensic Economics, Rochester, NY, USA

Journal of Business Valuation and Economic Loss Analysis, 2021, vol. 16, issue 1, 1-13

Abstract: In any context where a discounted cash flow valuation is required, there is the issue of estimating the continuing value. The most common way to do that is to assume that by the terminal horizon the company is in a steady state and is growing at a constant rate. The issue is how to handle inflation. The problem is that it is often done wrong and the impact is typically material. Because there remains significant confusion, in this paper we simplify the analysis by isolating the two key issues and providing example calculations. We show that even at the current 2% level proper treatment of inflation has a sizeable impact on valuation. If inflation were to accelerate as a result of current monetary and fiscal policies, the significance of this issue will increase.

Keywords: inflation; terminal value; growth; investment (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1515/jbvela-2020-0029 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:jbvela:v:16:y:2021:i:1:p:1-13:n:5

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/jbvela/html

DOI: 10.1515/jbvela-2020-0029

Access Statistics for this article

Journal of Business Valuation and Economic Loss Analysis is currently edited by Bradley T. Ewing and James J. Hoffman

More articles in Journal of Business Valuation and Economic Loss Analysis from De Gruyter
Bibliographic data for series maintained by Peter Golla ().