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Compute the net benefits using the discount rate

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Reference no: EM131220449

1. Consider a project that costs $10000 today. It will provide benefits of $4000 at the end of year1, $3500 at the end of year2, and 3500$ at the year of year3. If the discount rate is 6 percent, will this project be approved using cost-benefit analysis? Would your answer change if the discount rate is

a) 5 percent?

b) 4 percent?

2. Consider the following two projects. Both have costs of $5000 in year1. projects 1 provides benefits of $2000 in each of the first four years only. The second provides benefits of $2000 for each of years 6 to 10 only. Compute the net benefits using the discount rate of 6 percent. Repeat using a discount rate of 12 percent. What can you conclude from this exercise?

Reference no: EM131220449

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