2010 june Q1

If the flow had started at time 1, then you would have just used 14.11 (the annuity factor for 30 years) and this would have given a present value at time 0. However it starts 3 years later (at time 4 instead of time 1) and so multiplying by 14.11 will give a value 3 years later also (at time 3 instead of time 0). So we need to discount by three more years to get the present value.

Why we discount by 3 more years? the surplus starts at time 4, why we do not discount by 4 more years (14.11 x 1.1*-4)?

As I wrote before, if it started in 1 years time then you would get a present value at time 0. If it started in 2 years time you would get a present value at time 1. It starts in 4 years time, so using the annuity factor gives a present value at time 3. The annuity factor discounts the flows by 1 year, 2 year, 3 year and so on.