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Good day.
In several examples in OpenTuition book I’ve noticed, that if inflation rate is given in the example with NPV calculation – they start inflating from Year 1, sometimes – from Year 0.
In December11 exam, question 1, they start applying inflation from Year 2 cash flow.
Since cash flow is assumed to arrive at the year end, shouldn’t they start inflating from Year 1??
Anyway, what should be the first year to apply inflation?1. If cashflows are in real terms then apply calculations from Year 1.
2. If examiners say current year cashflows are already inflated then from next year start applying inflation.
3. If don’t get to know then take assumption that inflation is from first year and do your work, examiner will not cut much marks since you know how to do rest of the question.
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