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I’m solving an investment appraisal question, and came across a sentence that says ‘Selling price and costs are all in year one price terms’. In such a case how do I calculate inflation on the selling price, say, for example the selling price is £13,000 and inflation is at 3% per year?
I don’t know which qualification you are studying for, but investment appraisal with inflation is all explained in my free lectures (including this specific point) for ACCA Paper FM.
If the selling price is given in year 1 price terms, then the actual (nominal) cash flow will be 13,000 at time 1, and will inflate at 3% our year thereafter.
Thank you. this is helpful.
I’m studying for a degree in Accounting and Finance after which I hope on topping up an ACCA Qualification.
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