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

Answer:

    selling price at year 3: $ 188.89

at constant dollar year 3: $  167.94

Explanation:

selling price x accumualte raises:

$150 \times (1+0.06) \times (1+0.08) \times (1+0.10)$

$150 \times 1,25928‬$

selling price: 188,892

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

$188.892 \div ((1+0.03) \times (1+0.04) \times (1+0.05))$

$188.892 \div 1,12476‬$

constant dollar selling price: 167,9398271‬