Determine the average inflation rate for this commodity
1. For a certain commodity, prices increase by 50% the first year and 30% the second year.
Determine the average inflation rate for this commodity over this two-year period.
a) 80.0%
b) 40.5%
c) 39.6%
d) 40.0%
2. The CPI for 1995 was 152.4 and for 2010 it was 218.1. What was the average general inflation rate during these years?
a) 2.42%
b) 2.59%
c) 3.18%
d) 2.27%
3. To calculate the NPW (at year 0) of N annual cash flows of $1000 constant dollars (starting from year 1), which of the following equations is/are correct? (i: market interest rate, f: inflation rate, i’: inflation-free interest rate)
a) NPW = $1000 × (P/A, i’, N) — use the equal payment series present worth factor
b) NPW = $1000 × (P/A1, f, i, N) — use the geometric gradient series present worth factor
c) Both (a) and (b) are correct
d) Neither (a) nor (b) is correct
4. Engler Corporation manufactures specialized blades. Last year the company manufactured and sold 40,000 blades. Sales are down this year to an estimated 35,000 units, however the company is unable to reduced its fixed costs from the prior year. Its total estimated cost for the 40,000 units it made last year is as follows:
Direct Material (variable) $375,000
Direct Labor (variable) $250,000
Manufacturing Overhead
Variable portion $75,000
Fixed portion $90,000
Selling and Administrative
Variable portion $55,000
Fixed portion $45,000
What is the break-even price for the blades this year (given a production forecast of 35,000 blades)?
a) $29.67
b) $29.04
c) $22.73
d) $25.17
