A finite time−horizon deterministic inventory model is developed, taking the demand rate at any instant to be a function of the on−hand inventory (stock−level) at that instant. Shortages in inventory are allowed. The effects of inflation and time value of money are considered. Two separate inflation rates: namely, the internal (company) and the external (general economy) are introduced. A numerical example of the model is discussed. A sensitivity analysis of the optimal solution with respect to the parameters of the model is examined.