You are trying to decide on the best way to clean up a pond that can be used for recreation and are given two schedules of costs and benefits over the next ten years that area as follows:
|
PLAN A
|
PLAN B
|
|
YEAR
|
Costs
|
Benefits
|
Costs
|
Benefits
|
|
0
|
400
|
25
|
10
|
20
|
|
1
|
20
|
75
|
10
|
20
|
|
2
|
20
|
75
|
10
|
20
|
|
3
|
20
|
75
|
10
|
20
|
|
4
|
20
|
75
|
10
|
20
|
|
5
|
20
|
75
|
10
|
20
|
|
6
|
20
|
75
|
10
|
20
|
|
7
|
20
|
75
|
10
|
20
|
|
8
|
20
|
75
|
10
|
20
|
|
9
|
20
|
75
|
10
|
20
|
|
10
|
20
|
75
|
200
|
100
|
a. If you are indifferent between current consumption and future consumption, which plan would you choose? Show the calculations you used to come up with your answer.
b. If the discount rate is 3%, which plan would you choose? what if the discount rate is 10%? Show the calculations you used to come up with your answer.