TABLE OF CONTENTS As we shall see in this chapter, the return on investments depends on the effects of inflation. To analyze the effect of inflation, we shall use the case study Campa Spain and Campa Argentina. This case study concerns two companies engaging in the same business and in identical market conditions but with very different inflation rates. The problem of inflation and its consequences is expressed very clearly. And its solution is very simple.
Victor Campa wondered where part of the money from his businesses in Argentina went. His brother Alberto was engaging in a business that was identical to his business in Spain but his profits were much higher.
Alberto Campa sold undecipherable wave radio transmitters through Campa Spain. The Campa brothers had developed a device (with the appearance of a black box) in which they placed a normal radio transmitter. Over a 1-year period, the transmitter acquired certain special magnetic properties so that the waves it emitted were impossible to decipher. They kept the black box at home and the patent gave them worldwide protection.
Complete manufacture of the black box Campa Spain's only fixed asset cost 20 million euros. The box operated for 5 years, at the end of which it could no longer be used and it had no residual value. The business was very simple. On December 31, 2000, they bought a normal transmitter for 80 million euros in cash, put it in the black box and sold it to the government...
