Question
In: Economics
Economics Cost-Benefit Analysis: The Los Angeles area has long been plagued by urban smog. Suppose that...
Economics Cost-Benefit Analysis:
The Los Angeles area has long been plagued by urban smog. Suppose that one of several ozone-reducing policy options is being evaluated by economists using benefit-cost analysis.
Since the policy will be implemented over time, economists assume that per resident benefits will accrue in increments of $500 at the end of each of the next three years. Find the present value of benefits (PVB) for each resident, assuming an annual discount rate of 9%.
Solutions
Expert Solution
Annual benefit of $500 for 3 years
Discount rate = 9% (0.09)
Present value of annual benefit in 1st year = [500 / 1.09^1] = 458.72
Present value of annual benefit in 2nd year = [500 / 1.09^2] = 420.84
Present value of annual benefit in 3rd year = [500 / 1.09^3] = 386.09
Sum of presennt value of annual benefit = 458.72 + 420.84 + 386.09 = 1,265.65
Rahul Sunny answered 2 years agoRelated Solutions
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