In 2013, Sunny Electronics expects to sell 100,000 3-D television sets for an average price of $1,000. Expected production costs are $600 per unit. In 2014, volume is expected to increase by 10%, while inflation will increase both the sales price and the cost per unit by 3%. In nominal dollars, expected gross profit for 2014 is
A) $40 million.
B) $45.32 million.
C) $48.20 million.
D) $50 million.
In 2013, Sunny Electronics expects to sell 100,000 3-D television sets for an average price of $1,000. Expected production costs are $600 per unit. In 2014, volume is expected to increase by 10%, while inflation will increase both the sales price and the cost per unit by 3%. In real dollars, expected gross profit for 2014 is
A) $40 million.
B) $45.32 million.
C) $48.2 0 million.
D) $50 million.
In 2013, Sunny Electronics expects to sell 100,000 3-D television sets for an average price of $1,000. Expected production costs are $600 per unit. In 2014, volume is expected to increase by 10%, Inflation will increase the cost per unit by 3%, but to attract more buyers, Sunny will reduce the price to $950. In nominal dollars, expected gross profit for 2014 is
A) $45.32 million.
B) $40 million.
C) $38 million.
D) $36.52 million.
Greenspan Inc. discounts cash flows at a nominal rate of 10%. Inflation over the next few years is expected to average 3%. Which of the following would be a correct adjustment for inflation when computing net present value?
A) Discount cash flows at 10%; increase revenues and expenses by 3% each year.
B) Discount cash flows at 13%; increase revenues and expenses by 3% each year.
C) Discount cash flows at 7%; ignore inflation when forecasting revenues and expenses.
D) Either A or C would be acceptable.
Nominal cash flows are expressed in terms of their purchasing power in a base year.
Answer: FALSE
The real discount rate includes expected inflation.
Answer: FALSE
