a)
To describe: The net present costs of the two programs.
a)
Answer to Problem 10E
Net present cost in first and second alternatives are
Explanation of Solution
Present value of cost of first alternative,
Present value of cost incurred in first year
"
"
Preset value in the first year is,
So, the cost incurred in the first year =
Present value of cost incurred in second year
"
"
Preset value in the second year is,
So, the cost incurred in the second year =
Present value of cost incurred in third year
"
"
Preset value in the third year is,
So, the cost incurred in the third year =
Present value of cost incurred in fourth year
"
"
Preset value in the fourth year is,
So, the cost incurred in the fourth year =
Present value of cost of second alternative,
Present value of cost incurred in first year
"
"
Preset value in the first year is,
So, the cost incurred in the first year =
Present value of cost incurred in second year
"
"
Preset value in the second year is,
So, the cost incurred in the second year =
Present value of cost incurred in third year
"
"
Preset value in the third year is,
So, the cost incurred in the third year =
Present value of cost incurred in fourth year
"
"
Preset value in the second year is,
So, the cost incurred in the second year =
Total discounted cost of second alternative is greater than the first alternative.
Introduction: The discount rate is the rate at which a discounted cash flow (DCF) model will measure the real value of potential cash flows. This helps to assess whether future cash flows from a project or investment are more than the investment required to fund the existing project or amount.
b)
To describe:
The cost and benefit analysis of two programs.
b)
Answer to Problem 10E
Based on the cost and benefit analysis second alternative is less as compare to first one.
Explanation of Solution
Discountedprofit from first alternative,
Present value of cost incurred in first year
"
"
Preset value in the first year is,
So, the cost incurred in the first year =
Present value of cost incurred in second year
"
"
Preset value in the second year is,
So, the cost incurred in the second year =
Present value of cost incurred in third year
"
"
Preset value in the third year is,
So, the cost incurred in the third year =
Present value of cost incurred in fourth year
"
"
Preset value in the fourth year is,
So, the cost incurred in the fourth year =
Discounted profit of second alternative,
Present value of cost incurred in first year
"
"
Preset value in the first year is,
So, the cost incurred in the first year =
Present value of cost incurred in second year
"
"
Preset value in the second year is,
So, the cost incurred in the second year =
Present value of cost incurred in third year
"
"
Preset value in the third year is,
So, the cost incurred in the third year =
Present value of cost incurred in fourth year
"
"
Preset value in the second year is,
So, the cost incurred in the second year =
Benefit-cost ratio of the first alternative
Benefit-cost ratio of the second alternative
Based on the cost and benefit analysis second alternative is less as compare to first one.
Introduction:
The discount rate is the rate at which a discounted cash flow (DCF) model will measure the real value of potential cash flows. This helps to assess whether future cash flows from a project or investment are more than the investment required to fund the existing project or amount.
c)
To describe:
The ambiguous choice between the two alternatives and the factors are likely to weigh on the ultimate choice.
c)
Answer to Problem 10E
Government can adopt the second alternative.
Explanation of Solution
From the costs and the benefits analysis, it is indicated that the government must choose the first alternative instead of second ones. But the further insight into the lives saved and injuries prevented is required. The first alternative shows that expenditure reduces from
On the other hand, in second alternatives, the expenditure reduced from
Introduction:
The discount rate is the rate at which a discounted cash flow (DCF) model will measure the real value of potential cash flows. This helps to assess whether future cash flows from a project or investment are more than the investment required to fund the existing project or amount.
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Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning