ACCA FM · Chapter 7 · Question 8 of 10
A project is being appraised using the money method. Which of the following cash flows should NOT be adjusted for future inflation?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Tax savings from tax-allowable depreciation
Explanation
Tax-allowable depreciation is based on the historical cost of the asset, which is fixed when it is bought, so the related tax savings do not increase with inflation. Revenues and operating costs are expected to change with prices and must be inflated (at their specific rates) to money terms.
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