Question

A privately run, for-profit, prison is considering ways in which it can cut its monthly costs and therefore increase profit.
One idea it is considering is to pay a judge to guarantee convicted prisoners in poor health win their appeals and are set free.
The prison believes it can realize the monthly cost savings below over the initial year of the plan. What is the present
value of the first year's monthly cost savings? Assume a discount rate of 8%. THE ANSWER IS REQUIRED IN A SMALL BOX, so there needs to be a formula answer that says $49,701
				Month	Savings ($)
				1	3,500
				2	6,000
				3	6,500
				4	9,000
				5	9,000
				6	9,000
				7	9,400
				8	9,800
				9	4,800
				10	5,000
				11	2,000
				12	3,500
				Total	77,500

Answer 1

Solution Discount rate 8.00% Month 1 12 3 Saving PVE PV 35001 0.926 3240.74 60001 0.857 5144.03 6500 0.794 5159.91 9000 0.735 6615.27 9000 0.681 6125.25 9000 0.6301 5671.53 94001 0.583 5484.81 9800 0.5401 5294.64 48001 0.500 2401.20 50001 0.463 2315.97 2000] 0.429 857.77 3500 0.397) 1389.90 77500 NPV 49701.00 10 11 12 [1/(1+r)]^n where, PVF where r is discount rate and n is Number of month PV = Saving X PVF *Note: It has been assumed that monthly discount rate is 8%