Capex = Depreciation

Right. At the terminal period, ideally, the company is at steady state. So you don't want capex depr or extremely > depr because that would imply that the company's asset base is decreasing or increasing to infinity.

Love that you've picked up on the inflation consideration. Still just a student?

"Your boy Blue"

If you're interested in how this plays out in the real world, I would recommend reading Warren Buffet's rationale behind purchasing the Berkshire textile mill. Specifically when he explained to the manager of the mill why capex would be reduced even thought it would impede future revenue.

Where can I read up on this? I have exactly the same problem

Normally it's set equal to depreciation

I’d put Capex as a % of sales, and depreciation as a % of PP&E, and keep those constant over time.

if you are reducing your investment in PPE, CapEx can be lower than D&A, but on the long-run they are going to be balanced.. but in general I would try to keep D&A=CapEx

for modelling purpose, it doesn't matter much. you are not projecting out 100 years. as long as you don't let depreciation to result in a negative or drastic yoy reduction in net PP&E, it should be fine. it's ok to have net PP&E decrease, as depreciation itself is an arbitrary thing based on management's judgement of the useful life of the hard assets, etc.