The ABC company expects to receive Rs 1,00,000 for a period of 10 years from a new project it has just undertaken. Assuming a 10 per cent rate of interest, how much would be the present value of this annuity?
The appropriate ADF (annuity discount factor) of a 10 year annuity at 10 per cent is to be found from the 10th row (representing time period) against the 10 per cent interest column from Table A-4. This value is 6.145. Multiplying this factor by the annuity amount of Rs1,00,000, we find that the sum of the present value of annuity is Rs 6,14,500.
Let us take an example to clarify how the problems involving varying cash inflows are to be worked out (Example 2.9).