The mayor of your city is considering building a new toll road to

reduce congestion. The cost of the toll road is $10 million and is

estimated to generate a profit (from tolls collected less expenses

collecting the tolls and maintaining the road) of $2 million per

year.

A.What is the present value of the first year's profit of $2 million?

(If discount rate is 8% (0.08)) (2points)

B. If the discount rate is 8%, how many years would it take before

the road is paid for?

The number of years it will take to recover the initial $10 million

investment. (8points