Consider two projects: Project A currently costs $15 million, which is to be paid this year. The returns are $10 million in one year and $8 million in two years. Project 8 currently costs $13 million, again to be paid this year. The returns are $9 million in one year and $8 million in two years. At an interest rate of 6%, the net present value of Project A is roughly while the net present value of Project B is roughly Suppose investing in one project eliminates the opportunity to invest in the other. If the interest rate is 6%, Project is preferable.

Consider two projects: Project A currently costs $15 million, which is to be paid this year. The returns are $10 million in one year and $8 million in two years. Project 8 currently costs $13 million, again to be paid this year. The returns are $9 million in one year and $8 million in two years. At an interest rate of 6%, the net present value of Project A is roughly while the net present value of Project B is roughly Suppose investing in one project eliminates the opportunity to invest in the other. If the interest rate is 6%, Project is preferable.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

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