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DEAR SIR
somehow i got stuck in inflation
UNITS SOLD
Y1 520,000 . Y2 .624,000 Y3. 717,000 Y4. 788,000
SELLIG PRICE PER UNIT IS 30 $
This information needs adjusting to take account of selling price inflation of 4% per year and variable cost inflation of 3% per year. The fixed costs, which are incremental and related to the investment project, are in nominal terms. The year 4 sales volume is expected to continue for the foreseeable future.
my question is do we need to inflate selling price at year 1 @ 4%. in your lecture you said we inflate in year 2 for selling price not in year 1.
if we do not inflate in year 1 then if selling prices are different , like 30$ in year 1 and 35$ in year two how to inflate? should it be like
30 for year 1 . and
35*1.04^2 in year 2?
Every time you multiply by 1.04, you are adding on 1 years inflation.
If the $30 is at current prices, then at time 1 the price will be 30 x 1.04, and at time 2 the price will be 30 x (1.04^2).
If, on the other hand, the question says that $30 is the selling price in the first year, then it will be 30 at time 1, and it will be 30 x 1.04 at time 2.
I think it will help you to watch the lecture again.
thank you so much Sir ….yes i watched lecture again especially example 5 and now crystal clear 🙂
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