Question

A product that sells today for $150 per unit is expected to escalate in price by 6% in year one, 8% in year two and 10% in year three. Calculate the escalated dollar year three product selling price. If inflation is expected to be 3% in year one, 4% in year two and 5% in year three, determine the year three constant dollar selling price.

Answer 1

selling price at year 3: $ 188.89

at constant dollar year 3: $ 167.94

Step-by-step explanation:

selling price x accumualte raises:

`150 * (1+0.06) * (1+0.08) * (1+0.10)`

`150 * 1,25928‬`

selling price: 188,892

now, to calculate the constante dollar we discount for inflation:

`188.892 / ((1+0.03) * (1+0.04) * (1+0.05))`

`188.892 / 1,12476‬`

constant dollar selling price: 167,9398271‬