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How selling price from third year calculated? I am able to do for yr 1 and 2.
Also calculation of variable cost and Fxd cost from yr 2??Also working cap calculations on Hw figures from 1722 arrived?
Please tell me which exam the question was in – I am afraid I cannot remember the name of every question in every exam 🙂
The selling price for the third year is $700 x 1.05 x 1.05 x 1.04 = 803 (2 years inflation at 5% and 1 year at 4% – the EU rates of inflation).
For the fourth year it is $700 x 1.05 x 1.05 x 1.04 x 1.04 = 835 (2 years inflation at 5% and 2 years at 4%).
For the costs, it is the same approach but obviously using the inflation rates in Yilandwe.
The working capital needs to be increased each year by Yilandwes inflation rate.
So it is 9,600 at time 0 (from the question).
At time 1 it needs to be increased by 22% which means an extra 2,112 (22% x 9,600)
That means they now have 9,600 + 2,112 = 11,712At time 2 it needs to be increased by 14.7%, which means an extra 1,722 (14.7% x 11,712)
That means they now have 11,712 + 1,722 = 13,434
And so on 🙂
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