Question 4: Suppose you work for a company interested in an investment in green technology. It...

Question 4: Suppose you work for a company interested in an investment in green technology. It would change your production practice but also make it more environmentally friendly. You estimate the costs and benefits over a 5-year period.

	Year 1 (t=0)	Year 2	Year 3	Year	Year 5
Costs	100	5	5	8	10
Benefits	15	40	40	35	30

Find the present value of the investment using a 10% discount rate.
Find the present value of the investment using a 5% discount rate.
Which discount rate yielded a higher present value for the investment? Why?

Solutions

Expert Solution

Find the present value of the investment using a 10% discount rate $9.69

Find the present value of the investment using a 5% discount rate. $19.86

Which discount rate yielded a higher present value for the investment? Why? $19.86

the lower yield rate will give higher present value due to the reason the risk we perceive for the investment will decide the rate. if Rate is higher the value will be lower and viceversa

*Please comment if you face any difficulty and please don't forget to provide positive rating*

jeff jeffy answered 1 year ago

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