Widget Corp. is considering opening a new division to produce units that it expects to sell at a price of $$15,700$ each in the first year of

the project. The company expects the cost of producing each unit to be $$5,500$ in the first year; however, it expects the selling price and

cost per unit to increase by $3\%$ 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

Which of the following statements about inflation's effect on net present value $($NPV$)$ is correct?

When the selling price and cost per unit are expected to increase at the same rate, you do not need to take inflation into account when

performing a capital budgeting analysis.

When the selling price and cost per unit are expected to increase at the same rate, forgetting to take inflation into account in a capital

budgeting analysis will typically cause the estimated NPV to be lower than the true NPV$.$