Consider the following two projects. Both have costs of $5000 in Year 1. Project 1 provides benefits of $2,000 in each of the first four years only. The second provides benefits of $2,000 for each of Years 6 to 10 only.
A. Compute the net benefits using a discount rate of 6 percent.
B. Repeat using a discount rate of 12 percent.
C. Discuss what you conclude from this exercise.
Consider the following two projects. Both have costs of $5000 in Year 1. Project 1 provides benefits of $2,000 in each of the first four years only. The second provides benefits of $2,000 for each of Years 6 to 10 only.
A. Compute the net benefits using a discount rate of 6 percent.
B. Repeat using a discount rate of 12 percent.
C. Discuss what you conclude from this exercise.
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Related questions
1a) A project has the following costs and benefits. What is the payback period
| year | cost | benefits |
| 0 | $55,000 | |
| 1 | $15,000 | |
| 2 | $5000 | $50,000 |
| 3-10 | $5,000 each year |
1b) Mention two disadvantages of using the payback period analysis
1c) Two mutually exclusive alternatives are being considered for reducing traffic congestion. User benefits come from reduces congestion once the project complete, while user disbenefits are due to increased congestion during construction. The interest rate is 8%, and the life of each alternative is 15 years. Which alternative should be chosen?
| A | B | |
| User benefits ($M/yr) | 2.1 | 2.6 |
| User dis-benefits ($M) | 1.2 | 2.1 |
| First cost($M) | 6.9 | 9.9 |
| Operations and maintenance $M/yr) | 0.75 | 0.825 |
a) Use the benefit-cost ratio
b) Use the government version of the B/C ratio
