Question
Suppose that the initial investment today for a public project is $500,000. The expected projects benefits for the next three years are (in thousands): $400,
Suppose that the initial investment today for a public project is $500,000. The expected projects benefits for the next three years are (in thousands): $400, $550, and $600; the projects annual operating cost for the corresponding years are (in thousands): $180, $200, and $300, respectively. Assume that all cash flow occur at the end of the year, except for the initial investment which is a one-time expenditure today. Assume two discount rate scenarios for this project: 5 percent and 10 percent, all else being the same. Should the project be accepted (i.e. is this project economically viable?)
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