The Investment Budget with Consideration of Inflation Factor

Under the stress of inflation, company´s capital investment budget is affected by the increase of price. On purpose of making scientific investment decisions, the company must take into account the impact of inflation. This paper attempts to show the impact of inflation on company´s investment decision making. With the aim to provide direct and scientific data to illustrate the influence of inflation, we use two methods to calculate investment budget Net Present Value. The calculation results show that the budget which considers inflation is more accurate. Additionally, we use the western solution to the problem of inflation in capital budget to exemplify how Chinese enterprises budget for the capital investment under inflation. This paper also provides detailed calculation steps, based on a specific case of company, and offers a reference for the Chinese companies´ investment budget. This paper concludes that the enterprise budget should consider the impact of price changes, and the inflation rate should be taken into account when price increases.