Question
Suppose a city is considering making an investment in a flood control project. Most of the costs would be incurred upfront in the project construction,
Suppose a city is considering making an investment in a flood control project. Most of the costs would be incurred upfront in the project construction, while most of the benefits are gained over time, as potential floods are avoided. A cost-benefit analysis over a 50 year period using a discount rate of 5% shows that the costs slightly exceed the benefits. Choose the correct statement.
Group of answer choices
A higher discount rate would likely result in the opposite conclusion- with benefits exceeding the cost.
A lower discount rate would likely result in the opposite conclusion - with benefits exceeding the costs. Since the costs exceed the benefits, the city should definitely not proceed with the project.
A lower discount rate would likely result in the the costs exceeding the benefits by a larger margin.
The cost-benefit analysis depends on the discount rate, but since discount rates are established by global economic conditions, the city has no choice on what discount rate to apply.
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