The list price of a new van was $30,000 at a local car dealership. However, a customer convinced the dealer to sell the van for $25,000 (the van had cost the dealer $20,000 one year earlier). The van would cost the dealer $24,000 today. Inflation is 5% per year. The amount of profit that would be recognized by the dealer as a result of the sale using the nominal dollar approach is:
A) $10,000
B) $2,500
C) $5,000
D) $6,000

Question

Quizplus · Accepted Answer

Using the nominal dollar approach, we only consider the dollar amounts without adjusting for inflation.

The dealer purchased the van for $20,000 one year ago, and would sell it for $25,000, resulting in a profit of $5,000. Therefore, the amount of profit that would be recognized by the dealer using the nominal dollar approach is $5,000.

The List Price of a New Van Was $30,000 at a Local