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In Question 15 fernhurst,
Initial selling price is 100 in year 1 and inflation expected to be 4% in year 1 and 5% in subsequent years til year 4.In solution they took apporach of 1.00 in Y1, 1.05 Y2, 1.052 Y3, 1.053 in year 4
As per my understanding it should be 100 Y1, 100*1.05 =105 Y2, 105 *1.05=110.25 and so on…
Please advise what is the correct approach and why BPP kit has taken first approach.It is a typing error, but the final figures are correct and presumably agreed with the answer you had arrived at.
They have not multiplied by 1.052. It should be written as 1.05^2 and this is what they have used when arriving at the total revenue.
Similarly, 1.053 should read 1.05^3 and the calculation itself is correct.
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