Question

Asked Sep 15, 2019

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?

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 |

Assume a discount rate of 8%. Show both written and excel solutions.

Step 1

Calculate the present value as follows:

Step 2

Working not...

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