A hydroelectric dam is projected to produce annual benefits that grow in concert with the regional economic growth rate of 2%. The first benefit amount, $600,000, occurs at the end of year 5 (after the dam is constructed and the reservoir fills). If the interest rate is 8% and the benefits are assumed to continue growing through year 50 (50-year planning period), what is the present value of benefits (at t = 0)?`

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A: Given:

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A: NPV is the first priority rule.

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A:

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A: Excel Spreadsheet: Excel Workings:

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.