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a. What would happen to the project's profitability if inflation were neutral, that is, if both sales prices and cash costs increase by the 5
a. What would happen to the project's profitability if inflation were neutral, that is, if both sales prices and cash costs increase by the 5 percent annual inflation rate? If both the the sales price and costs increased by 5%, the NPV would be -$239,943, a monumental loss to the company. b. Now suppose that Robert Montoya is unable to pass along its inflationary input cost increases to its customers. For example, assume that cash costs increase by the 5 percent annual inflation rate, but that the sales price can be increased at only a 2 percent annual rate. What is the project's profitability under these conditions? If the sales price increases by 2% and the costs increase by 5% the NPV of the project would be -$332,843, leaving the company worse off than if both sales price and costs were to increase neutrally
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