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Relevant Cash Flows for DCF – Inflation effective rates
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Hi John:
Thanks for your lecture with such clarity. As it relates to inflation, June 2012 question # 1, how are the inflated selling and variable costs arrived at from years 2 to 4? we are given selling prices from years 1 to 4 being $25, $24, $23 & $23 with 4% inflation the answers given are $26 (ok), $25.96, $25.87, & $26.91. Variable cost given for years 1 to 4 are $10, $11, $12 & $12.50 at 2.5% inflation. answers given are $10.25 (ok), $11.56, 12.92 & $13.80.
Thank you
Inflation on selling prices is 4% per year.
So the selling price in year 2 is 24 x 1.04^2 and in year 3 is 23 x 1.04^3 and so on.
Thank you. I did ” x 1.04″ only and not “1.04^2″ etc. Is there a time when you use only “x 1.04″ for each year?
Greatful for your timely response.
No – you multiply by 1.04 for each year of inflation.
Thank you
You are wonderful.
Excellent ! Very understandable
Great Lecture!
I agree with what my dear brother says. I am from pakistan and even here the teachers are not very talented if i may compare them with John! thank you John for such wonderful lectures.
@Saad Bin Aziz, actually there ARE pretty good teachers here in karachi
i study at india where there is a great lack for good teachers and i have just(4days) come to know of your videos and already am gonna complete watching all the sessions-they are so addictive which also means you are still to do a lot of marketing about these lectures but i can tell you they ll be more than just a soaring hit……………………!!!!!!!!!!!
kudos u guys rock…………………
the part when you said about bringing
1.05/1.15 = 1/1.15/1.05 …..it hit the penultimate part of my understanding of the fischer’s formula…………
i am speechless…