Accounting for Inflation
When accounting for inflation in a business decision, there are two approaches: actual dollar analysis and constant dollar analysis. Under actual dollar analysis, every cash-flow instance represents the actual out-of-pocket dollars received or paid at that point in time. This kind of analysis is also called one of several terms: then-current dollars, current dollars, future dollars, escalated dollars, inflated dollars, and so on. Under constant dollar analysis, every cash-flow instance represents a hypothetical constant purchasing power referenced to a fixed point in time. This kind of analysis is sometimes referred to as real dollars, deflated dollars, today's dollars, zero-date dollars, etc.
A useful analogy to contrast ...
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