You are offered the following information about a proposed government project:

The costs of building the project will total $1,100, with $600 of expense incurred immediately and $100 incurred over each of the five subsequent years.

Benefits from the project will be $100 at the end of the second year, $200 at the end of the third year, and $300 per year from the end of the fourth year to the end of the eighth year.

a) Assuming a social discount rate of $10 percent, is this project viable?

b) How would your answer change if all of the expenses were incurred immediately?

c) Once again using the original information, at what discount rate will this project break even in the sense that discounted benefits will equal discounted costs? [Note: This discount rate is known as the internal rate of return or IRR of the project].

2. Return to Problem 1 above and consider the new information that a sustained inflation rate of 5 percent per year is now projected. Assuming a nominal interest rate of 15 percent, what will be the net present value of this project? (Note: assume that all the costs and benefits in the problem were calculated without any account of possible inflation.)

Please show all equations used as well as the steps