Discounted values and discount rates

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Consider a project with costs of $10 million per year for 10 years. Assuming that the costs are paid the last day of each year, the present discounted value of these costs, using a 5% discount rate is?

Jul 20th, 2015

Thank you for the opportunity to help you with your question!

Given -

Annual cost (Annuity) = $10 million

Time period = 10 years

Discount rate = 5%

Payments are made at the end of each year means it is an ordinary annuity.

Present value interest factor of annuity (5%, 10 years) = 7.7217 .........(either use PV table or online calculator to find this value)

Thus, present discounted value of $10 million annual payment is = $10 million * 7.7217

                          = $77.217 million  (Answer)

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Jul 20th, 2015

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