The federal government is planning to clean up the Great Pacific Garbage patch. It will cost $2bn in the first year and then $1bn in the following year. The benefits of the clean-up will be greater marine life, valued at $2bn for 3 years after the clean-up. If the discount rate is 40%, should the federal government do this?   Yes, because $6bn is bigger than $2bn   Yes, because the present value of benefits exceeds the present value of costs   No, because the present value of benefits is lower than the present value of costs   Yes, because clean-up of marine life is always important

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

The federal government is planning to clean up the Great Pacific Garbage patch. It will cost $2bn in the first year and then $1bn in the following year. The benefits of the clean-up will be greater marine life, valued at $2bn for 3 years after the clean-up. If the discount rate is 40%, should the federal government do this?

 

Yes, because $6bn is bigger than $2bn

 

Yes, because the present value of benefits exceeds the present value of costs

 

No, because the present value of benefits is lower than the present value of costs

 

Yes, because clean-up of marine life is always important

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Present Discounted Value
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education