An individual is considering to switch from an environmentally unfriendly good to an environmentally friendly good where the upfront costs are relatively high. NPV = n=! n=1 (eq. 1.1) Environmentally friendly option Year 0 5000 0 Costs Benefits (NFV), (1+r)" Costs Benefits 1 5000 3500 Environmentally unfriendly option Year 0 1000 0 1 5000 2000 2 5000 3500 3500 3 4 5000 5000 3500 2 3 5000 5000 2000 2000 4 5000 2000 Given the distribution of costs and benefits of both options in the tables above which option should the individual choose assuming a discount rate of 10%? If you choose another discount rate - what would that be and why? Based on the two different discount rate, discuss the distribution of net benefits?
An individual is considering to switch from an environmentally unfriendly good to an environmentally friendly good where the upfront costs are relatively high. NPV = n=! n=1 (eq. 1.1) Environmentally friendly option Year 0 5000 0 Costs Benefits (NFV), (1+r)" Costs Benefits 1 5000 3500 Environmentally unfriendly option Year 0 1000 0 1 5000 2000 2 5000 3500 3500 3 4 5000 5000 3500 2 3 5000 5000 2000 2000 4 5000 2000 Given the distribution of costs and benefits of both options in the tables above which option should the individual choose assuming a discount rate of 10%? If you choose another discount rate - what would that be and why? Based on the two different discount rate, discuss the distribution of net benefits?
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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Transcribed Image Text:An individual is considering to switch from an environmentally unfriendly
good to an environmentally friendly good where the upfront costs are
relatively high.
n=t
NPV = Σ (NFV),
(1+r)
n=1
(eq. 1.1)
Environmentally friendly option
Year
0
5000
0
Costs
Benefits
Costs
Benefits
1
5000
3500
Environmentally unfriendly option
Year
0
1000
0
1
5000
2000
2
5000
3500 3500
3
4
5000 5000
3500
2
3
5000
5000
2000 2000
4
5000
2000
Given the distribution of costs and benefits of both options in the tables
above which option should the individual choose assuming a discount rate of
10%? If you choose another discount rate - what would that be and why?
Based on the two different discount rate, discuss the distribution of net
benefits?
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