The renovation is estimated to increase the production capacity to generate higher sales revenues from $35,000 to $500,000. The gross profit margin will increase from 15% to 20%.

The above figures are in real terms. The annual inflation rate is expected to be 2% within the forecast horizon. Suppose P&G and its suppliers adjust product prices for inflation annually.

Using the nominal discount rate of 10% to calculate NPV, what is the incremental gross profit in the first year?

Answer rating: 100% (QA)

Step 1 Adjusting for inflation To convert the real figures to nominal figures we need to adjust f... View the full answer