Question

The net profit expected from a manufacturing unit is ₹ 6000 per year. The operational life of the unit is 15 years. Assuming a fixed discount rate of 8 % per annum, the net present worth of the profit earned over the operational life is ₹ _______ (answer in integer).

Hint:

The net present worth (NPW) of future cash flows can be calculated using the formula for the present value of an annuity.

Answer 1

Correct Answer: 49200

The net present worth \( NPW \) of a series of annual profits is given by the formula: \[ NPW = P \cdot \frac{1 - (1 + r)^{-n}}{r}, \] where:
- \( P = 6000 \) is the annual profit,
- \( r = 0.08 \) is the discount rate,
- \( n = 15 \) is the operational life.
Substitute the values into the formula: \[ NPW = 6000 \cdot \frac{1 - (1 + 0.08)^{-15}}{0.08} \approx 6000 \cdot 9.818 = 58,908. \] Thus, the net present worth is ₹ 58,908.