7. Inflation in project analysis It is often easy to overlook the impact of Inflation on the net present value of the project. Nat incorporating the impact of inflation in determining the value of the cash flows of the project can result in erroneous estimations Consider the following scenario: Galaxy Corp. is considering opening a new division to produce units that it expects to sell at a price of $12,450 each in the first year of the project. The company expects the cost of producing each unit to be 56,200 in the first year; however, it expects the selling price and cost per unit to increase by 1% each year. Based on the preceding information, the company expects the selling price in the fourth year of the project to be cost per unit in the fourth year of the project to be and it expects the $12.700 Which of the following statements about inflation's effect on net present value (NPV) is correct? $12,575 When the selling price and cost per unit are expected to increase at the same rate, you do not need to $12,956 in into account when performing a capital budgeting analysis $12,827 When the selling price and cost per unit are expected to increase at the same rate, forgetting to take inriation into account in a capital budgeting analysis will typically cause the estimated NPV to be lower than the true NPV. e company expects the selling pr roject to be it inflation's $6,262 het present $6,388 ist per unit a ed to increa ng analysis. $6,325 $ ost per unit a $6,452 ed to increas Hly cause the estimated NPV to be