aiO Tor your house) that has a lifetime of 5 years. It will cost you $130 to install and will reap benefits in terms of energy saved of $10 in year 1, $20 in year 2, $30 in year 3, $40 in year 4, and $50 in year 5. Calculate your discount factors for each of the next 5 years. d а. What is the net present value of the energy savings? Is the insulation a good investment for you? Would the insulation be a good investment if your discount rate were a constant 5% over the 5 years? b. с. d. b ai 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? 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? c. 0s 5. Consider the twin communities of Tuckerville and Matildastan. These are seaside resorts that neighbor each other and attract many tourists. Matildastan wants to raise some money to clean up the streams in town; their approach to this is to levy a "bed tax"-a per night tax on every visitor to a hotel. There are 3,500 hotel rooms in Matildastan and 1,500 hotel rooms in Tuckerville. The rooms are identical and tourists do not really mind which town they stay in. There are no other nearby towns. The variable cost of providing a hotel room (electricity, maid service, other labor clerks, etc.) and $10 for nonwage
aiO Tor your house) that has a lifetime of 5 years. It will cost you $130 to install and will reap benefits in terms of energy saved of $10 in year 1, $20 in year 2, $30 in year 3, $40 in year 4, and $50 in year 5. Calculate your discount factors for each of the next 5 years. d а. What is the net present value of the energy savings? Is the insulation a good investment for you? Would the insulation be a good investment if your discount rate were a constant 5% over the 5 years? b. с. d. b ai 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? 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? c. 0s 5. Consider the twin communities of Tuckerville and Matildastan. These are seaside resorts that neighbor each other and attract many tourists. Matildastan wants to raise some money to clean up the streams in town; their approach to this is to levy a "bed tax"-a per night tax on every visitor to a hotel. There are 3,500 hotel rooms in Matildastan and 1,500 hotel rooms in Tuckerville. The rooms are identical and tourists do not really mind which town they stay in. There are no other nearby towns. The variable cost of providing a hotel room (electricity, maid service, other labor clerks, etc.) and $10 for nonwage
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:aiO Tor
your house) that has a lifetime of 5 years. It will cost you $130 to install and will reap
benefits in terms of energy saved of $10 in year 1, $20 in year 2, $30 in year 3, $40 in
year 4, and $50 in year 5.
Calculate your discount factors for each of the next 5 years.
d
а.
What is the net present value of the energy savings?
Is the insulation a good investment for you?
Would the insulation be a good investment if your discount rate were a constant
5% over the 5 years?
b.
с.
d.
b
ai
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?
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?
c.
0s
5.
Consider the twin communities of Tuckerville and Matildastan. These are seaside
resorts that neighbor each other and attract many tourists. Matildastan wants to
raise some money to clean up the streams in town; their approach to this is to levy
a "bed tax"-a per night tax on every visitor to a hotel. There are 3,500 hotel rooms
in Matildastan and 1,500 hotel rooms in Tuckerville. The rooms are identical and
tourists do not really mind which town they stay in. There are no other nearby
towns.
The variable cost of providing a hotel room (electricity, maid service, other labor
clerks, etc.) and $10 for nonwage
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