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Sir.. could you please explain how inflations for sales is adjusted in the following situation.
Annual sales are expected to be 30,000 units in Years 1 and 2 and will then fall by 5,000 units per year in both Years 3 and 4. The selling price in first-year terms is expected to be $4.40 per unit and this is then expected to inflate by 3% per annum.
Also, could you please briefly explain different terms which examiner may use in exam such as “first-year terms” etc. and there relevant adjustment.
Have you watched all of the lectures on inflation?
The flow at time 1 is 30,000 x $4.40; at time 2 is 30,000 x 4.4 x 1.03 at time 3 is 25,000 x 4.4 x 1.03^2, and at time 4 is 25,000 x 1.03^3
‘First year terms’ is not a phrase normally used in the exam, but explains itself – it is the selling price in the first year.
I explain the terms in the lectures.