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Inflation Rates and Market Value

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Please help with the following problem.

Assume that inflation rates have been fairly high. Would this tend to increase or decrease the market value of a firm's assets (relative to their book values)? Explain.

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Solution Summary

This solution explains the effects of inflation on the market value of a firm's assets (with example calculations) in 300 words. It discusses whether inflation rates would increase or decrease the market value of a firm's assets. Step by step calculations are given with explanations.

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Problem: Assume that inflation rates have been fairly high. Would this tend to increase or decrease the market value of a firm's assets (relative to their book values)? Explain.

Solution:
According to Dictionary.com, inflation is defined as: "a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency".

Inflation is an increase in prices of all goods and services. Inflation can have a large impact on the discrepancy between an asset's book and market ...

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