The cash-flow and wealth transfer approach to common stock valuation was employed to investigate the effects of each variable on equity value under inflation. The derived inflation model demonstrates that the firm`s net operating income sensitivity to inflation, net monetary position and depreciation position nay have positive or negative effects an stock returns, depending upon whether an unanticipated decrease or increase in inflation has occurred. Empirical results provide evidence consistent with the theoretical inflation model for monetary position and depreciation position. Unreliability with the NOI empirical measure preclude a conclusion that the theoretical model on expected NOI sensitivity impact from unanticipated inflation is either denied or confirmed. The role of risk control was closely examined by using alternative regression models. Spurious correlations between a risk variable and inflation-related variables are not supported by this study. The developed model and empirical test results have implications both to investors and financial managers. Unless investors have a superior ability over the market to correctly forecast the future inflation rates, they can not expect excess returns from information on the firm`s monetary or depreciation characteristics. The inflation consequences of a firm`s financing and investment decisions appear to be fully reflected in stock prices at the time decisions are undertaken. Since further stock price changes occur in response to unanticipated inflation only, financial managers should not expect to increase common stock value over the long run from decision strategies on monetary and depreciation position aimed at obtaining windfall inflationary gains.