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?
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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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