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Cost-benefit Analysis and present value calculations. A project has the following benefit and cost across time: 1. Year 0 (this year): benefit is 2, cost

Cost-benefit Analysis and present value calculations. A project has the following benefit and cost across time: 1. Year 0 (this year): benefit is 2, cost is 6 2. Year 1: benefit is 10, cost is 2 3. Year 2: benefit is 20, cost is 8 (benefit and cost after year 2 is zero.)

(a) assuming that the discount rate (or discount factor) is r = 1, what is the present value (sum of the discounted benefits minus costs) of the project? (b) For what value of discount rate r, the present value of the project will be exactly equal to zero? Let r be that value. Explain in two sentences if you expect the present value to be positive or negative if the discount rate is more than r.

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