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4. An investment of $100 today will avoid $1,000,000 of environmental damage in 100 years. a. b. C. At a discount rate of 10%, is this investment a good idea? At a discount rate of 1%, is this investment a good idea? At a discount rate of 2%, what is the maximum we would be willing to pay to avoid the million dollars of environmental damage in 100 years?

4. An investment of $100 today will avoid $1,000,000 of environmental damage in 100 years. a. b. C. At a discount rate of 10%, is this investment a good idea? At a discount rate of 1%, is this investment a good idea? At a discount rate of 2%, what is the maximum we would be willing to pay to avoid the million dollars of environmental damage in 100 years?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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**Question 4:** An investment of $100 today will avoid $1,000,000 of environmental damage in 100 years. a. At a discount rate of 10%, is this investment a good idea? b. At a discount rate of 1%, is this investment a good idea? c. At a discount rate of 2%, what is the maximum we would be willing to pay to avoid the million dollars of environmental damage in 100 years?
Transcribed Image Text:**Question 4:** An investment of $100 today will avoid $1,000,000 of environmental damage in 100 years. a. At a discount rate of 10%, is this investment a good idea? b. At a discount rate of 1%, is this investment a good idea? c. At a discount rate of 2%, what is the maximum we would be willing to pay to avoid the million dollars of environmental damage in 100 years?
2. You are the mayor of the small town of Wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $2,000,000. You are very tempted because of the wildlife which live there (such as moose) as well as the recreational value to your constituents. You look at the *Financial Times* and see that if you borrow money for this project, the interest rate will be 5% per annum, and so conclude the discount rate you should use is 5%. Your Parks department estimates that annual recreational and environmental benefits will be $100,000 a year. a. Looking only at the next 50 years, is buying the woodland a good idea? b. What is the maximum amount you would be willing to pay the landowner to lease the land for 50 years?
Transcribed Image Text:2. You are the mayor of the small town of Wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $2,000,000. You are very tempted because of the wildlife which live there (such as moose) as well as the recreational value to your constituents. You look at the *Financial Times* and see that if you borrow money for this project, the interest rate will be 5% per annum, and so conclude the discount rate you should use is 5%. Your Parks department estimates that annual recreational and environmental benefits will be $100,000 a year. a. Looking only at the next 50 years, is buying the woodland a good idea? b. What is the maximum amount you would be willing to pay the landowner to lease the land for 50 years?
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