During a recession, the prices of goods and services goes down due to low demand. In order to stay in business, service providers may elect to offer their services at a reduced price to obtain and execute work that is scheduled for the future.

A company producing motor-vehicle parts is planning to expand its production facilities 1 year from now and the cost will be R15,000,000 (at that time i.e. one year from now). A construction company that is low on work, offers to do the expansion for R11,850,000 if the motor-vehicle-parts-company is willing to do the expansion immediately instead of 1 year from now. The current interest rate is 15% and it is expected to stay at this level during the coming year.

What is the equivalent present value of the work that is planned 1 yearfrom now?