In analyzing projects, it’s hard enough to estimate cash flows today, let alone adjust for inflation and growth. Besides, it seems that inflation would affect all alternatives equally. Inflation and growth in project cash flows change the playing field. Just as some plants can endure frost while others can’t, and some horses run better in mud than others, inflation and growth improve some projects more than others. You need to be able to tell the difference and choose the project that will make it through the muddy waters of inflation and growth.
Imagine that your company must choose between two alternative projects. One project looks better at today’s cash flow levels while the other project would benefit more from growth in cash flows. You expect inflation and you expect that the market will expand. You need to know how inflation and growth will affect IRR and NPV for each project, and how much growth would be needed to make the second project better. You should also consider the outcome if some parts of the cash flow stream change and others don’t.
Do you know how inflation and growth will affect your decisions? In the Accenture Academy course Incorporating Growth and Inflation in Project Analysis
you can determine how growth in project cash flows will determine which project will ultimately add more value for your company. You can determine the effects of growth on IRR and NPV for alternative projects, and you can examine how to rebuild and compare cash flows for each to account for differences in the effects of growth.
Don’t get left behind. There is a simple way to adjust for inflation and growth. You won’t always know how much cash flows will change, but your knowledge of how inflation and growth affect your decisions will put you ahead of your competition. This course will get your project out of the muck of uncertainty and on the fast track to success.