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Hello john,
Apologies for duplicating this question all over but am sure you understand my desperation lolAm having trouble understanding how to calculate the inflated variable and fixed cost in the June 2011 NPV question
I will appreciate any help on this
Regards
At time 1, the variable cost will be 0.7M (boxes) x $2.80 (cost at current prices) x 1.03 (to inflate for 1 year. Total = 2.0188M
At time 2, the variable cost will be 1.6M (boxes) x $3.00 (cost at current prices) x 1.03^2 (to inflate for 2 years). Total = 5.09232M
Same logic for time 3 and 4For fixed costs, at time 1 will be 1M x 1.03 (to inflate for 1 year) = 1.03M
At time 2 will be 1.8M x 1.03^2 (to inflate for 2 years) = 1.90962
same logic at time 3 and 4.The free lecture on NPV and inflation will help you.
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