2006 AM Q1: growth in a portfolio from yr 0 to yr 1

I’m confused about something here. In this past exam, it gives you 8.5% growth rate for the guys $40 million portfolio and says *all dividends are reinvested. But then it includes the income (computed as 8.5% * 40M) in the inflows part of the calculation, not the portfolio. I’d have thought the Yr 1 starting value would be the $40M * 1.085.

Any thoughts?