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Hello,
So there’s a question (omnikit June/97) with initial outlay in year 0 and 1. Land is about say 5000 in year 0, and Working Kapital is about say 1600 in year 1 and plant is about 2000 in yr 1.
The question called these costs projected ffigures.
The question as a whole assumed all costs and prices to increase with inflation given in the question. They rather inflated sales and costs.
I would have ordinarily assumed that all costs from year 1(including initial oultay) are affected by inflation but the question didn’t inflate any of the year 1 initial outlay.
Is it a rule that all initial outlays aren’t affected by inflation or its just bcos the question said “projected costs”?
Thanks.
It is because it says projected costs.
(In practice, if you are quoted a price for construction etc. then it will usually be a fixed quote.)It it says projected cost. What does this mean? and If it does not say projected cost, what does it mean?
Projected cost is the forecast cost.
You would always ignore inflation of the amount of the investment unless the question specifically said that it would inflate.
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