The document discusses inflation and how to adjust costs and returns for inflation when evaluating investments. It outlines a three-step procedure: 1) estimate current costs and returns, 2) modify the estimates using an assumed inflation rate to represent future values, and 3) calculate equivalent amounts using time value of money principles. It also discusses how inflation should be considered when analyzing the economic lifetime of machines, as purchase costs, maintenance costs, and salvage values will change over time due to inflation. Replacement analysis evaluates these changing cost elements to determine the most economical time to replace a machine.