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The question says that there are sales of 300,000 units a year at a selling price of $14, so the annual revenue is 4,200,000.
Also in the question it says that the relevant costs are 3,230,000 per year.
So the annual net cash flow = 4,200,000 – 3,230,000 = 970,000But the examiners has shown the workings in the line above.
It is the 970,000 a year net cash flows, multiplied by 7.191 (which is the 15 year annuity discount factor at 11% because there are 15 years of flows), multiplied by (1/11)^3, which is the normal 3 year discount factor for 3 years at 11% (because the flows start three years late – at time 4 instead of time 1).
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