Consider these R&D cost for a project and the year in the system life cycle they
ID: 2767914 • Letter: C
Question
Consider these R&D cost for a project and the year in the system life cycle they incurred. Assume an annual interest rate environment of 1.4. What is the present value of R&D expenditures?
Year
1
2
3
Crm
19367.02
0
15833.41
Crp
16659.86
18719.64
16851.44
Crr
0
12219.1
12000.07
Cre
10060.4
17258.32
0
Answer is 135185.8307
The answer is given, please show work to achieve this answer.
Year
1
2
3
Crm
19367.02
0
15833.41
Crp
16659.86
18719.64
16851.44
Crr
0
12219.1
12000.07
Cre
10060.4
17258.32
0
Explanation / Answer
Discount factor= 1/(1+r)^n
n= time period
so D1=(1/1.014^1)=0.986
D2=(1/1.014^2)=0.9725
D3=(1/1.014^3)=0.9591
PV = Sum of all the cost in that Year* discount factor
so PV1=46087.28*D1=45450.97
PV2=46875.36 PV3=42859.5
add all PV1+Pv2+PV3=135185.8
ear 1 2 3 Crm 19367.02 0 15833.41 Crp 16659.86 18719.64 16851.44 Crr 0 12219.1 12000.07 Cre 10060.4 17258.32 0 Total 46087.28 48197.06 44684.92 Discount factor 0.986193 0.972577 0.959149 PV 45450.97 46875.36 42859.5 Sum of PV 135185.8