To examine the implications of selecting various discount rates, reconsider the water filtration system example in the

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To examine the implications of selecting various discount rates, reconsider the water filtration system example in the text but change the discount rate from 10 percent to 5 percent. 

a. Find the present value of the system.

b. Now compare this present value with the one calculated under the assumption of a 10 percent rate. Explain the difference intuitively. 

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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