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Question: A water treatment plant is considering implementing a new treatment technology to treat water at lower costs. They are deciding between two options. Option A has an expected life of 8 years. It would cost $180,000 to install and yield net benefits of $40,000 at the end of each of the 8 years. Option B has an expected life of 24 years. It would cost $2.25 million to install and yield net benefits of $170,000 at the end of each of the 24 years. Using a real discount rate of 5 percent, which project offers larger net benefits? (Hint: You may want to create a formula in Excel to calculate the present value of each year of net benefits. It will likely be faster than doing 24 separate calculations.)

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92634625

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