Answer:
The present value of the total net return (total benefit) is $21,922,868.23
Explanation:
As the yearly net return is a form of annuity cash flow.
To calculate the present value of the total net return we will use the following formula
First we need to determine the present value of net return at the end of year 3, then we will discount further to calculate the present value at year 0
Present value of net return at the end of year 3 = Yearly net return x ( 1 - ( 1 + Interest rate )^-Number of extraction years ) / Interest rate
Where
Yearly net return = $5,000,000
Interest rate = 5%
Number of extraction years = 6 years
Present value of net return at the end of year 3 = ?
Placing values in the formula
Present value of net return at the end of year 3 = $5,000,000 x ( 1 - ( 1 + 5% )^-6 ) / 5%
Present value of net return at the end of year 3 = $5,000,000 x 5.0756921
Present value of net return at the end of year 3 = $25,378,460.34
Now we need to discount the value further to calculate the present value at year 0
Present value of net return at the end of year 0 = Present value of net return at the end of year / ( 1 + Interest rate ) ^numbers of year
Present value of net return at the end of year 0 = $25,378,460.34 / ( 1 + 5% )^3
Present value of net return at the end of year 0 = $21,922,868.23
