Suppose you determine that a firm's real sales in 2006 would be $10 million (in terms...

Suppose you determine that a firm's real sales in 2006 would be $10 million (in terms of 2004 dollars). What would the firm's nominal 2006 sales be assuming an annual inflation of 3% in both 2005 and 2006?

Group of answer choices

$10.609 million

$9.709 million

$9.426 million

Not possible to compute this without knowing CPIs in 2004 and 2006

$10.3 million

Solutions

Expert Solution

Nominal sales in 2006 = Real sales in 2006 in terms of 2004 dollars * (1 + rate of inflation)^2

Nominal sales in 2006 = 10 * (1 + 0.03)^2

Nominal sales in 2006 = 10 * 1.0609

Nominal sales in 2006 = $10.609 million

Option A is correct

jeff jeffy answered 2 years ago

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