A municipality is deciding between 2 environmental projects.

The first project will last 5 years. The costs of the project are fixed at $50,000 per year. Benefits will be $40,000 in year 1 and increase by $10,000 per year (in year 5 benefits will be $80,000).

The second project will last forever. The project will take 10 years to be built and it will cost $10,000 per year. Benefits will start flowing to the municipality in year 21 and will last forever. The per year benefit is $100,000.

If the municipality choses a project based on a benefit-cost analysis, which project will it select if the discount rate is 10% (rounded to the nearest dollar)?

Show all work!!

Answer rating: 100% (QA)

Okay lets calculate the net present value NPV of each project using a ... View the full answer