Inflation considerations in Engineering Economics

The following discussion agenda is on Inflation considerations in Engineering Economics:

1. What is inflation?
2. Procedure to adjust inflation
3. Inflation adjusted economic life of machine
• Economic life determination without inflationary effect
• Economic life determination with inflationary effect

Lecture notes: refer to page 8 of lecture notes on inflation. The following steps indicates how it (pg 8) is related to the Fisher formula:

Refer to lecture notes page 8 below:

The following note is related to page 10 of the lecture notes:

Refer to page 10 lecture notes below:

The following notes explains why inflation will lead to lower real IRR because depreciation charge is constant, leading to higher income tax amount on larger amount of profit in real dollar term (re: lecture note pg. 20):

References

1. Panneerselvam, R. (2001) "Chapter 11: Inflation adjusted decisions" Engineering Economics, Prentice-Hall of India
2. On inflation: http://en.wikipedia.org/wiki/Inflation; a video on inflation: http://www.youtube.com/watch?v=9sZdXJbK554&feature=related
3. How to calculate inflation rate (video): http://www.youtube.com/watch?v=0MmOiDhYC-s
4. On deflation (video): http://www.youtube.com/watch?v=LH7cFQrgxpk&feature=related
5. Quantity theory of money: http://en.wikipedia.org/wiki/Quantity_theory_of_money
6. Fisher equation: http://en.wikipedia.org/wiki/Fisher_equation
7. On money supply: http://en.wikipedia.org/wiki/Money_supply
8. On quantitative easing: http://en.wikipedia.org/wiki/Quantitative_easing
9. On consumer price index (video): http://www.youtube.com/watch?v=hnCYtx3frRA
10. On Phillips curve: http://www.youtube.com/watch?v=-Fk_2iRfC18