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
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
Chapter5: Investment Decisions: Look Ahead And Reason Back
Section: Chapter Questions
Problem 5.4IP
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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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