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The initial selling price in Year 1 is expected to be $100 per unit, before increasing with the rate of inflation annually.
sir, why are we not considering inflation for the first year which is 4% in our calculus?
The question specifically says that the selling price in the first year will be $100. Therefore it will only inflate in later year. It would only inflate in the first year if it had been quoted at current prices (and I do specifically mention this in my free lectures on investment appraisal with inflation as something to watch out for 🙂 )
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