Answer:
$17,721
Explanation:
The computation of the Net present value is shown below
The discount factor should be computed by
= 1 ÷ (1 + rate) ^ years
where,
rate is 17%
Year = 0,1,2,3,4 and so on
Discount Factor:
For Year 1 = 1 ÷ 1.17^0 = 1
For Year 1 = 1 ÷ 1.17^1 = 0.8547
For Year 2 = 1 ÷ 1.17^2 = 0.7305
For Year 3 = 1 ÷ 1.17^3 = 0.6244
For Year 4 = 1 ÷ 1.17^4 = 0.5377
For Year 5 = 1 ÷ 1.17^5 = 0.4561
For Year 6 = 1 ÷ 1.17^6 = 0.3898
For Year 7 = 1 ÷ 1.17^7 = 0.3332
So, the calculation of a Present value of all yearly cash inflows are shown below
= Year 0 cash inflow × Present Factor of Year 0 + Year 1 cash inflow × Present Factor of Year 1 + Year 2 cash inflow × Present Factor of Year 2 + Year 2 cash inflow × Present Factor of Year 2 + Year 3 cash inflow × Present Factor of Year 3 + Year 4 cash inflow × Present Factor of Year 4 + Year 5 cash inflow × Present Factor of Year 5 + Year 6 cash inflow × Present Factor of Year 6 + Year 7 cash inflow × Present Factor of Year 7
= $3,600 × 1 + $3,600 × 0.8547 + $3,600 × 0.7305 + $3,600 × 0.6244 + $3,600 × 0.5377 + $3,600 × 0.4561 + $3,600 × 0.3898 + $3,600 × 0.3332
= $3,600 + $3,077 + $2,630 + $2,248 + $1,921 + $1,642 + $1,403 + $1,200
= $17,721
We take the first four digits of the discount factor.
