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It is often easy to overlook the impact of inflation on the net present value of the project. Not incorporating the impact of inflation in

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It is often easy to overlook the impact of inflation on the net present value of the project. Not incorporating the impact of inflation in determining t value of the cash flows of the project can result in erroneous estimations. Consider the following scenario: Praxis Corp. is considering opening a new division to make iGadgets that it expects to sell at a price of $14,950 each in the first year of the project. The company expects the cost of producing each iGadget to be $5,500 in the first year; however, it expects the selling price and cost per iGadget to increase by 3% each year. Based on this information, complete the following table: Selling price in year 4: Cost per unit in year 4: If a company does not take inflation into account when analyzing a project, the expected net present value (NPV) of the project will typically be than the true NPV of the project

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