Answer:
Galaxy Corp.
1. Based on the preceding information and rounding dollar amounts to the nearest whole dollars, the company expects the selling price in the fourth year of the project to be__$17,172___ , and it expects the cost per unit in the fourth year of the project to be ___$7,544___.
2. The CORRECT statement about inflation's effect on net present value (NPV) is:
B. When the selling price and cost per unit are expected to increase at the same rate, you do not need to take inflation into account when performing a capital budgeting analysis.
Explanation:
a) Data and Calculations:
Expected selling price of iToy = $15,250 per unit
Expected cost of producing iToy = $6,700 per unit
Expected annual increase in selling price and cost per iToy = 3.00%
The expected selling price in the fourth year of the project = $15,250 * (1 + 0.03)^4
= $17,172 ($15,250 * 1.126)
The expected cost per unit in the fourth year of the project = $7,544 (6,700 * 1.126)
