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Usually we have one specific inflation rate for one cash flow for example 3% for sales and 2% for costs etc, but what if we have different inflation rates for sales for each year e.g. 3% for year 1 and 4% for year 2 and 5% for year 3. How we calculate the inflation for sales?
There is not one inflation rate!
To get the nominal cash flows, you multiply by 1.03 for the first year. You multiply by 1.03 and by 1.04 to get the second years flow, and you multiply by 1.03 and by 1.04 and by 1.05 to get the third years flow.
Have you watched my free lectures on inflation?
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