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Question 5. Consider the following 3 criteria for undertaking an investment project: (i) PV,(B) > K, r is the social rate of discount (ii) PVp(B)
Question 5. Consider the following 3 criteria for undertaking an investment project: (i) PV,(B) > K, r is the social rate of discount (ii) PVp(B) > K , p is the private rate of discount or market interest rate (iii) PVp, (B) > K, where pi = E wiri + Ewjr; and _ wi + Ew; = 1 n+1 n+1 and PV(B) is the net benefit of a stream of benefits Bo, ...., Brand K is the initial outlay a. What real world feature makes (iii) a better criterion than (i) or (ii) ? b. If there is no consumption which criterion would you use ? c. What are the potential problems with all three criteria
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