June 2014 Q2 Inflation rates

The sales at time 1 in current prices are 23.03 The inflation is 8% per year. Therefore the actual sales at time 1 are 23.03 x 1.08 = 24.87 The sales at time 2 in current prices are 36.60 Therefore the actual sales at time 2 are 36.60 x 1.08^2 = 42.69 The sales at time 3 in current prices are 49.07 Therefore the actual sales at time 3 are 49.07 x 1.08^3 = 61.81 It is the same procedure for the 4th year and also for the variable costs. I do suggest that you watch my free lectures (and if needed the relevant lectures for Paper F9, because this is revision from Paper F9. In the F9 lectures I explain why we do this, because it is vital for the exam that you understand why and are not simply following a rule.)