NPV June 2010, no. 3b

Note 4 in the question says that they are 500 per year at current prices, inflating at 6% per year.
Note 5 in the question says that they include 200 per year that are effectively sunk costs, and so only the remaining 300 (at current prices) is relevant.

Therefore in 1 year the cash flow will be 300 x 1.06 = 318
In 2 years it will be 300 x 1.06^2 = 337
in 3 years it will be 300 x 1.06^3 = 357
In 4 years it will be 300 x 1.06^4 = 379

I really do suggest that you watch my free lectures – they are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
The two points involved here really are very basic and important points, and are therefore obviously dealt with in full in the free lectures 🙂