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hat yields the following stream of benefits and 2. The government is contemplating project A that yields the followi costs. Project A Year 2 0

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hat yields the following stream of benefits and 2. The government is contemplating project A that yields the followi costs. Project A Year 2 0 $10,000 0 Costs, Benefits 0 2,000 | $4,000 | $6,000 (a) Find the net present value and the benefit cost ratio for this project, assuming a discount rate of 5%. Suppose that project A has the stream of benefits and costs as above but the analyst forgot to include the horizon value of the project. Estimates suggest that the horizon value evaluated in year 3 is-$1000. Explain why the horizon value might be negative. Given this new information, is project A desirable? Explain. (b)

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