See below the costs and benefits associated with 2 treatments, A and B. Costs and...
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See below the costs and benefits associated with 2 treatments, A and B. Costs and benefits are measured in dollars
Costs
Treatment
Yr 1
Yr2
Yr3
A
100
700
400
B
400
300
200
Benefits
Treatment
Yr 1
Yr2
Yr3
A
300
400
900
B
500
600
100
A.Assuming a discount rate of 5% and no discounting applied in Yr 1, calculate the present value of net benefits for each treatment.
Ans.
B.If the treatments are stopped after Yr 2, which treatment do you prefer? Why?
C.Assume a really large discount rate, 100%. Calculate the present value of net benefits (use all three years and don't discount for the first year)
D.How does the higher discount rate affect the net present value? Does it affect which treatment you prefer?
See below the costs and benefits associated with 2 treatments, A and B. Costs and benefits are measured in dollars
Costs
Treatment | Yr 1 | Yr2 | Yr3 |
A | 100 | 700 | 400 |
B | 400 | 300 | 200 |
Benefits
Treatment | Yr 1 | Yr2 | Yr3 |
A | 300 | 400 | 900 |
B | 500 | 600 | 100 |
A.Assuming a discount rate of 5% and no discounting applied in Yr 1, calculate the present value of net benefits for each treatment.
Ans.
B.If the treatments are stopped after Yr 2, which treatment do you prefer? Why?
C.Assume a really large discount rate, 100%. Calculate the present value of net benefits (use all three years and don't discount for the first year)
D.How does the higher discount rate affect the net present value? Does it affect which treatment you prefer?
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