Question

forecast to be 5%. D! the 4 years. (3.3) Yearly labor costs of a highway maintenance group are currently $420,000/year. If labor rates escalate at a 12% rate and general inflation increases at 9%, determine for each of the next 6 years the labor cost in then-current and constant worth dollars. (3.3) IC ou desire a real return of 8% on your money, excluding inflation, and inflation is uld you be seeking? (3.3)

Answer 1

Labor cost = $420,000

Labor cost rises by 12% each year

Inflation rate = 9%

Years = 6

Actual labor cost in real terms rises by = 12% - 9% = 3%

Labor cost in current (nominal terms) dollar = 420,000(1+0.12)⁶ = 829,005.52

Labor cost in constant (real terms) dollar = 420,000(1+0.03)⁶ = 501,501.9