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Could you help me with the long-term discounting problem? Exercise 1: Long Term Discounting (30 points) Assume a project will result in benefits of $1

Could you help me with the long-term discounting problem?

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Exercise 1: Long Term Discounting (30 points) Assume a project will result in benefits of $1 million each year for 150 years (i.e. annual benefits) by building a hydroelectric dam that will provide clean energy to a city. (a) (10 pts) Compute the present value of these benefits using a time-constant discount rate of 3. (b) (15 pts) Compute the present value of these benefits using the following time-declining discount rate schedule: 3.5 percent for years 1-50; 2.5 percent for years, 51-100; 1 percent for years 101-150. (c) (5 pts) How does your answer in (a) compares to (b)? is the difference significant enough as to be important? Note: Use discrete time interest rates for this exercise (instead of continuous time interest rates), i.e. to discount "X" for a year at an interest rate of 5% we would use PV (X) = 145% (instead of PV (X) = X - e-5%)

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