Inflation and the Capital Budgeting Process.

This report performs first a theoretical review of why and how inflation needs to be considered in the capital budgeting process. The Net Present Value NPV capital budgeting equation model is modified extensively to account for the effects of inflation. Secondly, a limited review of the capital budgeting techniques of 3 major retailers is performed to determine the use of inflation adjusted techniques in actual practice. The report concludes with a comparison of the theoretical and empirical ways of dealing with the effects of inflation in the capital budgeting process. Author.