Question :

QUESTION 1

Consider a project with costs of $31 million total in 14 years. Assuming that the costs are paid the last day of the last year, the present discounted value of these costs, using a 5% discount rate is ___ million:

QUESTION 2

Consider a project with costs of $39 million total in 6 years. Assuming that the costs are paid the last day of the last year, the present discounted value of these costs, using a 5% discount rate is ___ million:

QUESTION 3

Consider a project with costs of $38 million total in 7 years. Assuming that the costs are paid the last day of the last year, the present discounted value of these costs, using a 4% discount rate is ___ million:

QUESTION 4

A project has costs of $10 million per year for 10 years. The benefits of $30 million per year occur in years 7, 8, 9, and 10. At a 5% discount rate, is this project socially desirable? (Assume that costs and benefits accrue on the last day of each year).

A. The project is socially undesirable; net benefits are -$0.7 million.
B. The project is socially desirable; net benefits are $2.2 million.
C. The project is socially undesirable; net benefits are -$20 million.
D. The project is socially desirable; net benefits are $20 million.

QUESTION 5

The Stern Report (see Box 4-3 on page 71 of your book) seeks to discount $6,000 billion of annual benefits occurring 100 years from now. If these are discounted at a rate of 5%, the present discounted value of the benefits will be approximately how many billions of dollars?

QUESTION 6

Suppose that the equilibrium wage in industry A is $46,000. Industry B is riskier with workers having a 8% greater chance of dying on the job; the wage in industry B is $65,000. What is the implied valuation of a life year?

QUESTION 7

Suppose that the equilibrium wage in industry A is $40,000. Industry B is riskier with workers having a 6% greater chance of dying on the job; the wage in industry B is $51,000. What is the implied valuation of a life year?

QUESTION 8

Compare two treatments. Treatment A provides an improvement of 0.1 QALYs at a cost of $2,000, whereas Treatment B provides an improvement of 0.2 QALYs at a cost of $5,000. Which treatment will planners prefer by cost-efficiency criteria?

A. treatment B because it provides a greater improvement.
B. treatment A because it is cheaper.
C. treatment A because it has a lower cost per QALY.
D. treatment B because it has a lower cost per QALY.

QUESTION 9

Suppose Sam has the opportunity for a treatment that will extend his life by one year with a probability of 0.70 by two years with a probability of 0.49, and three years with a probability of 0.33. Sam will die with certainty after three years. QALY weight q1 is 0.9 in year 1, q2 is 0.6 in year 2, and q3 is 0.2 in year 3. The discount rate is 7% per year. Make sure to discount all three years. The total number of discounted QALYs from this treatment is:

QUESTION 10

Suppose Sam has the opportunity for a treatment that will extend his life by one year with a probability of 0.57 by two years with a probability of 0.37, and three years with a probability of 0.11. Sam will die with certainty after three years. QALY weight q1 is 0.8 in year 1, q2 is 0.7 in year 2, and q3 is 0.5 in year 3. The discount rate is 6% per year. Make sure to discount all three years. The total number of discounted QALYs from this treatment is: