Your forecast shows $500,000 annually in sales for each of the next three years.If your second and third year predictions have failed to incorporate 2.5% expected annual inflation, how far off in total dollars is your three-year forecast?
A)$37,813
B)$50,000
C)$52,550
D)$76,250

Question

Quizplus · Accepted Answer

The forecast does not account for inflation in the second and third years. For the second year, with 2.5% inflation, sales should be $500,000 * 1.025 = $512,500. For the third year, inflation applies to the new base of $512,500, so sales should be $512,500 * 1.025 = $525,312.50. The total without inflation for three years is $1,500,000. With inflation, it's $500,000 (first year) + $512,500 (second year) + $525,312.50 (third year) = $1,537,812.50. The difference is $1,537,812.50 - $1,500,000 = $37,812.50.

Your Forecast Shows $500,000 Annually in Sales for Each of the Next