At an inflation rate of 25% p.a, the net present value of the contract with the cash inflows herein is <u>K15,568.81</u>.
<h3>How is the present value determined?</h3>
The present value represents the discounted value of the future cash inflows at an annual inflation rate of 25%.
With an online finance calculator, the present values can be computed as follows:
<h3>Data and Calculations:</h3>
N (# of periods) = 6
I/Y (Interest per year) = 25%
PMT (Periodic Payment) = $0
FV (Future Values) = K2,400, K2900, K4200, K3800, K3500 and K4000
Present Value of K2,400 = K2,215.38 (K2,400/1.083336)
Present Value of K2,900 = K2,471.01 (K2,900/1.173609)
Present Value of K4,200 = K3,303.41 (K4,200/1.271413)
Present Value of K3,800 = K2,758.89 (K3,800/1.377366)
Present Value of K3,500 = K2,345.62 (K3,500/1.49214)
Present Value of K4,000 = K2,474.50 (K4,000/1.61649)
Net Present Value = K15,568.81
Thus, the net present value of the contract is <u>K15,568.81</u>.
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