While a general discussion of the role of inflation on capital budgeting can only
draw on illustrative examples, it seems apparent that at current rates of inflation
the related tax effects must be an important factor in many present value comparisons
arising in practice. Further, unless relative factor costs, prices, and discount
rates have changed in very particular ways, it seems very probable that the ceteris
paribus effects discussed in this paper are indicative of actual distortions which
have been occurring as a result of inflation. One of the strongest arguments for
"indexing" of accounting costs would be the elimination of such distortions.