Consider two projects. The first project pays benefits of $90 today and nothing else. The second project pays nothing today, nothing one year from now, but $100 two years from now. Which project would be preferred if the discount rate were 0%? What if the rate increased to 10%?
At a discount rate of 0%,
the present value calculations would be $90 for project one
Present value of project two is;
therefore, project two is preferred.
At a rate of 10%, the PV of project one is still $90. For project two,
PV is now 82.6; therefore, project one is preferred.