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I do not understand how the values of yr 1-18,540 yr2 61,108 yr3 95,723 yr4 48,622 in the contribution of the parts sales have come from. would you please explain the step to have gotten the same with reason.
Currently they are charing $200 and making a contribution of $40. Therefore the cost must be $160.
They are going to increase the price to $280 per unit, and therefore the contribution will increase to 280 – 160 = $120 per unit.The US inflation rate is 3%, and therefore the contribution at time 1 is 150 units x $120 x 1.03 = $18,540. At time 2 it is 480 x $120 x 1.03^2 = $61,108, and so on.
Hi John, I don’t understand why we need to ^2, ^3, ^4 the inflation rate. Could you please clarify?
Many thanks 🙂
Is there is inflation of 3% per year, then each year we need to multiply by 1.03 so as to inflate the amount.
Have you watched my free lectures (and if you were exempt from Paper FM then I suggest that you watch my Paper FM free lectures dealing with inflation)?
Apparently using exponential is the faster way to calculate inflated prices/cost instead of manually inflating it in other table in Excel.
Thank you again Mr John! 🙂
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