If the cost of input is $1,000,000 this year; if you project inflation to be 3%
annually, what would be an appropriate forecast for the cost of that input in year
4? O $1,120,432 O $1,030,000 liati O $1,120,000 O $1,125,508 st b
Answer & Explanation
To forecast the cost of the input in year 4 with an annual inflation rate of 3%,
we can use the formula for compound interest:
[ \text{Future Cost} = \text{Present Cost} \times (1 + \text{Inflation Rate})^n ]
where:
Present Cost = $1,000,000
Inflation Rate = 3% or 0.03
( n = 4 ) years
Plugging in these values:
[ \text{Future Cost} = $1,000,000 \times (1 + 0.03)^4 ]
[ \text{Future Cost} = $1,000,000 \times (1.03)^4 ]
