Inflation And Interests Accounting And Finance Berkeley Assignment

3798 words - 16 pages

I.1 Adjusting for Inflation and Taxes
Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 1 / 28
What is Inflation?
Inflation is defined as the rate at which prices increase.
Inflation is typically measured by the Consumer Price Index (CPI).
The CPI measures the rate of increase of the price of a bundle of goods that
a “typical” consumer purchases.
If the cost last year was $1000 and the cost this year is $1020, then the rate
of the inflation was 2%
Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 2 / 28
Inflation over the last decade in the US
6 6
CPI-U 12-Month Changes, 2002 to Present
Percent Percent
All Items
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-1All Items Less
Food and Energy
CPI Detailed Report-December 2012
The Bureau of Labor Statistics now publishes numerous CPIs that differ by region
and “type” of person to which they apply.
Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 3 / 28
Where does inflation show up in business decisions
Cash flow projections
Annual growth rate is often projected based on historical “real” growth rate
scaled by expected inflation
Contracts (e.g., wages or benefits)
Colas = Cost of Living Adjustments (often based on CPI)
e.g., how much wages increase so that our employees are not worse off?
Financial Planning
People care about purchasing power. You need to take into account inflation
in order to achieve desired purchasing power.
e.g., How much can you consume more in real terms if you get an MBA?
Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 4 / 28
Nominal versus Real Terms
When dealing with inflation there are three relations to keep in mind:
1. Nominal versus real cash flows
C realt =
(1 + i)t
2. Nominal versus real interest rates
1 + r real =
1 + rnom
1 + i
3. Nominal versus real growth rates
1 + g real =
1 + gnom
1 + i
Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 5 / 28
Assuming that i = 2%
1. if you earn a nominal salary of $160,000 in two years, it is the same in real
terms (i.e., in purchasing power) to what
$160, 000
(1 + 2%)2
= $153, 787can buy today
2. If you can invest a nominal interest rate of 6%, the real interest rate (rate
at which your purchasing power will increase) is
r real =
1 + 6%
1 + 2%
− 1 = 3.9%
3. If nominal GDP increases by 3.5% part of this was simply due to inflation.
The real rate at which the economy grew (how much more stuff we
produced) is only
g real =
1 + 3.5%
1 + 2%
− 1 = 1.47%
Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 6 / 28
Assuming that i = 2%
1. if you earn a nominal salary of $160,000 in two years, it is the same in real
terms (i.e., in purchasing power) to what...

Other Essays On inflation and interests accounting and finance - berkeley - assignment

We will focus on the new 707 model and see what the impact is. - Finance - Assignment

1427 words - 6 pages Case Study: The Boeing 7E7 Finance The Rate of Return We feel that a required rate of return of 3.38% is an appropriate rate of return against which to evaluate the prospective IRRs from the Boeing 7E7 project. This 3.38% figure is the weighted average cost of capital (WACC) that we have estimated for Boeing’s airplane manufacturing division. In order to estimate this figure, we first had to determine which proxy betas to use and then unlever

Ethical And Legal Obligations In Accounting

1887 words - 8 pages purpose is "to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports" (PCAOB, 2006). Similar to the FASB, the PCAOB does not enforce the regulations: the PCAOB oversees auditors and how auditors conduct their audits.The SEC affirms the status of the Public Company Accounting Oversight Board (PCAOB) and the Financial Accounting Standards Board (FASB) when it comes to


958 words - 4 pages The article discusses about features of the German cost accounting system and ways that company running it can exploit its capabilities. Cost accounting in Germany is different compared to that in the US, and software systems are one of the key differences The German software company, SAP, has designed a complex software system that is on its way to becoming a world standard in business software. This system is based on German cost accounting

Case Study Of Diferences Between US And UK Accounting

3885 words - 16 pages these within the context of the accepted accounting standards within that particular country.The two opinion paragraphs from the Caterpillar financial report 2002 and the Marks and Spencer 2002 at first read seem to state similar objectives which have been taken during the auditing, that of an independent party seeking to assure whether or not the financial records of that particular entity have been compiled and produced to the standards that are

Comparing Periodic and Perpetual Inventory - Accounting 101 - Research Paper

2076 words - 9 pages Accounting 110 Professor Copeland October 21st, 2018 Nuts To You vs. International Spice & Food Perpetual inventory is an inventory system when inventory is adjusted continuously throughout an accounting period. Every time a product is sold, the inventory decreases and every time products are purchases for inventory purposes, the count increases. In perpetuals inventory system, inventory is also adjusted when products are moved from one location

Enron And What Went Wrong,The Accounting, The Ceo's, And The Retirement Plans Of Thousands

957 words - 4 pages electricity to homes and businesses in the U.S. . After buying awater company in England it began its international section. It seemed as ifEnron was going to be huge but they had other interests than just energy. In2000 Enron opened up a new sector of the company called EBS (EnronBroadband Services). Within the time of one year Enron spent 100 milliondollars buying thousands of miles of cable across the country and buyingrights to thousands more. Many

The Similarities between the Biblical and Mesopotamian Flood Stories - UC Berkeley History - Research Paper

2830 words - 12 pages Arash Akhavan 10 Let There be Flood The Similarities between the Biblical and Mesopotamian Flood Stories i. Abstract Based on the Eurocentric view of the history that is influenced by Judeo-Christian theology, the Genesis version of the story used to be considered as the original and the oldest story of the flood for years even among historians. The discovery of the Near Eastern flood stories and especially the work of George Smith along with

business law contract law cases - accoutning and finance - essay

2316 words - 10 pages ] · Café owner bought a cigarette vending machine and in the small print it said they are not liable for fault. When the machine failed to work the refused to give her a refund. · Decision: terms of the agreement were valid · principle: in the absence of misrepresentation or fraud, signature will incorporate terms into a contract irrespective of whether they are read or understood incorporation by being implied by statute · E.g. for business-to

management economic - admission and marriage - VNU - assignment

581 words - 3 pages acceptance procedure as he would be under any other stable assignment”. While presenting the deferred-acceptance procedure, Gale and Shapley made some simply assumptions about the interests of agents (colleges and applicants or men and women: (1) they have fixed priority and are not affected by exogenous factors, (2) strict priorities (3) priority colleges equals to substitutes. In my opinion, these assumptions have some limitations First, the

Final assignment - argument standardisation and critique - PHL137 Macquarie university - assignment

1947 words - 8 pages intentions existing are quite low given that most of the creators of this convention are capitalist nations whose economies benefit from this system and thus would not find it in their interests to be rid of it. To conclude, this argument takes the form of an inductive argument and consequently requires substantial and significant evidence in comparison to deductive variations if it is to be found a strong good one. Unfortunately this is not the case

Durkheim’s Key Ideas and Concepts - UCC - Assignment

3146 words - 13 pages years old has gone through several changes, moving from mechanical to organic solidarity between its residents. This assignment will look at, Durkheim’s mechanical and organic solidarity how they both exist at the same time. We will see through Durkheim’s approach, a change in religious beliefs, church attendance, community expansion, family rules and the importance of the emerging power of the female role within the community. Durkheim’s

Similar Papers

Capital Budgeting Accounting And Finance Berkeley Paper

2820 words - 12 pages I.1 Capital Budgeting Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 1 / 21 outline for Today 1. Capital Budgeting I Motivating Example I Key principles and one main formula I Understanding the main formula I Solve the motivating example - MiniCase (time permitting) Donatella Taurasi (Fung Institute) Accounting and Finance for Engineers – Lecture Notes Spring 2019 2 / 21 Motivating Example

Time Value Problem Set And Answers Umsl/Finance 6500 Assignment

828 words - 4 pages 1 Rev: SP2019 FINANCE 6500 TIME VALUE PROBLEM SET Please use your calculator to answer the following questions. Write your answer below each question, including the calculator keystrokes. The Open Market Committee of the US Federal Reserve System targets inflation as a means of controlling the economy. They have repeatedly stated their desire to have an annual inflation rate of 2%. Suppose they are able to achieve this year-in and year out

Corporate Finance Burberry And Mulberry Analysis De Montfort University Assignment

737 words - 3 pages prediction models based on financial ratios: Evidence from Colombia. Journal of International Studies,11(1), 273-287. Beaver, W. H. (1966). Financial ratios as predictors of failure. Journal of Accounting Research, 4(, Empirical Research in Accounting: Selected Studies 1966), pp. 71-111. Martin, D. (1977). Early warning of bank failure A logit regression approach. Journal of Banking & Finance, 1(3), 249-276. Janer,J.(2011). Bankruptcy Prediction and its Advantages: Empirical Evidence from SMEs in the French Hospitality Industry.Vol12. pp.34-37.

The Financial Accounting And Standards Board, Fasb Is An Organization That Sets Down The Accounting Mba Assignment

575 words - 3 pages      Maria Hernandez The Financial Accounting and Standards Board, FASB is an organization that sets down the accounting rules and guidelines that makeup Generally Accepted Accounting Principle, GAAP. The FASB developed the Statements of Financial Accounting Concepts, SFAC, to guide the Board in setting up standards in order to better understand accounting issues. SFAC No.1 explains the primary objectives in financial reporting. The primary