The federal government is planning to clean up the Great Pacific Garbage patch. It will cost $2bn in the first year and then $1bn in the following year. The benefits of the clean-up will be greater marine life, valued at $2bn for 3 years after the clean-up. If the discount rate is 40%, should the federal government do this?   Yes, because $6bn is bigger than $2bn   Yes, because the present value of benefits exceeds the present value of costs   No, because the present value of benefits is lower than the present value of costs   Yes, because clean-up of marine life is always important

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
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The federal government is planning to clean up the Great Pacific Garbage patch. It will cost $2bn in the first year and then $1bn in the following year. The benefits of the clean-up will be greater marine life, valued at $2bn for 3 years after the clean-up. If the discount rate is 40%, should the federal government do this?

 

Yes, because $6bn is bigger than $2bn

 

Yes, because the present value of benefits exceeds the present value of costs

 

No, because the present value of benefits is lower than the present value of costs

 

Yes, because clean-up of marine life is always important

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