Consistent Treatment of Inflation in Discounted Cash Flow Valuation

20 Pages Posted: 14 Aug 2019

See all articles by Bradford Cornell

Bradford Cornell

Anderson Graduate School of Management, UCLA

Richard Gerger

Cornell / Gerger Consulting

Date Written: July 2019

Abstract

Since the mid-1960s inflation has been a consistent aspect of the U.S. economy. Even at the relatively low rates of approximately 2% that prevail today, inflation can have an important impact on property tax appraisal and must be treated consistently. In this paper, we derive the proper formulas for taking account of inflation in the context of the constant growth models often used when applying the income approach to valuation. We demonstrate how older approaches, still in widespread use in unitary tax appraisals today, fail to properly adjust for inflation.

Keywords: valuation inflation

JEL Classification: G32

Suggested Citation

Cornell, Bradford and Gerger, Richard, Consistent Treatment of Inflation in Discounted Cash Flow Valuation (July 2019). Available at SSRN: https://ssrn.com/abstract=3435615 or http://dx.doi.org/10.2139/ssrn.3435615

Bradford Cornell (Contact Author)

Anderson Graduate School of Management, UCLA ( email )

Pasadena, CA 91125
United States
626 833-9978 (Phone)

Richard Gerger

Cornell / Gerger Consulting ( email )

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