The present value, of course, of $2 million dollars, that we need to spend

today, well, there's no time for the time value of money to have an effect.

Okay, so the present value of $2 million dollars received today

is equal to $2 million dollars.

$800,000 that we expect to occur at the end of the first year,

in present value terms equates to $727,723 today.

In two years' time, of course,

the $800,000 in present value terms, that second cash flow,

second net cash flow, in two years' time is worth less, $661,157.

The third cash flow, $601,052 and the cash flow,

the $800,000 net cash flow that we expect to occur in four

years' time translates to $546,411 today.

Let's just pause for a sec.

So intuitively what's going on here?

Let's consider that final cash flow.

As an investor, I'm indifferent between $546,411 in my hand immediately or

the promise of $800,000 in four years' time,

assuming the appropriate discount rate is 10% per annum.

Or if we switch that around a little bit, if you invest $546,411 today,

at 10% per annum for four years, it will accumulate to $800,000.

So the next step, the third step, is to add all those cash flows together,

because now they are recorded on a consistent,

more comparable basis that is in terms of their present value today.

So when we do this, we end up with an NPV of

$535,893, okay, a positive NPV.

What does that figure actually represent?