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 the value of the cash flows of the project can result in erroneous estimations. Consider the following scenario: Extensive Enterprise Inc. is considering opening a new division to produce units that it expects to sell at a price of $12,990 each in the first year of the project. The company expects the cost of producing each unit to be $6,200 in the first year; however, it expects the selling price and cost per unit to increase by 2% each year. Based on the preceding information, the company expects the selling price in the fourth year of the project to be and it expects the cost per unit in the fourth year of the project to be $13,250 Which of the following statements about inflation's effect on net present value (NPV) is correct? $13,515 When the selling price and cost per unit are expected to increase at the same rate, forgetting to take in $14,061 account in a capital budgeting analysis will typically cause the estimated NPV to be lower than the true NPV. $13,785 When the selling price and cost per unit are expected to increase at the same rate, you do not need to take ination into account when performing a capital budgeting analysis. Time Based on the preceding information, the company expects the selling price in the fourth year of the project to cost per unit in the fourth year of the project to be Which of the following statements about inflation's $6,450 het present value (NPV) is correct? $6,579 When the selling price and cost per unita d to increase at the same rate, forgetting to take budgeting analysis will typically cause the $6,324 NPV to be lower than the true NPV. When the selling price and cost per unit a $6,711 bd to increase at the same rate, you do not need to performing a capital budgeting analysis. Grade