Review Table 14-3 and the accompanying text. Assumptions Two hospitals report their annual projected revenue for five years to the local newspaper for a story on the areas future economic outlook. However, Hospital One has applied a cumulative inflation factor of five percent per year while Hospital Two has not applied any inflation factor. Thus the information is not properly comparable. Projected Revenue Year 1 Year 2 Year 3 Year 4 Year 5 Hospital 1 $20,000,000 $22,500,000 $27,500,000 $27,500,000 $30,000,000 Hospital 2 $20,000,000 $21,000,000 $25,000,000 $24,000,000 $26,000,000 Required Revise Hospital 2s projections by applying a cumulative inflation factor of five percent per year.

Year factor as shown at 10%

1 1.100

2 1.210

3 1.331

4 1.464

table 14-3.2

a b c d

year real dollars cumulative inflation factor nominal dollars

1 $500,000 (1.10) 1 = 1.100 $550,000

2 500,000 (1.10) 2 = 1.210 605,000

3 500,000 (1.10) 3 = 1.331 665,500

4 500,000 (1.10) 4 = 1.464 732,050