Imagine that you are faced with the following three public projects, each of which costs $3000. Please assume that this cost is applied to the project at Year 0 for all three cases. Which option would you decide to build? Please assume that the discount rate is 12 percent, and that benefits start in Year 1. Make sure that you explain why you would choose the option that you select. a. A parking structure that yields $1050 of benefits per year for 10 years b. A landfill that yields $800 of benefits per year for 6 years c. A new wastewater treatment plant that would yield $600 benefit per year forever 2. Would your answer to Problem 2 change if the discount rate were 5 percent? In this case, which of the three options would you choose and why?

Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Savings,investment And The Financial System
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1. Imagine that you are faced with the following three public projects, each of which costs $3000. Please assume that this cost is applied to the project at Year 0 for all three cases. Which option would you decide to build? Please assume that the discount rate is 12 percent, and that benefits start in Year 1. Make sure that you explain why you would choose the option that you select. a. A parking structure that yields $1050 of benefits per year for 10 years b. A landfill that yields $800 of benefits per year for 6 years c. A new wastewater treatment plant that would yield $600 benefit per year forever 2. Would your answer to Problem 2 change if the discount rate were 5 percent? In this case, which of the three options would you choose and why? Construct your solutions to these questions in an Excel file with seven tabs. One tab for your verbal answers to questions 1 and 2 above, and six tabs for the calculations (a separate tab for each of the three problems for question one and the three problems for question 2).
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