Consider two projects. The first project pays benefits of $90 today and nothing else. The second project pays nothing today, nothing one year from now, but $100 two years from now. Which project would be preferred if the discount rate were 0%? What if the rate increased to 10%?
What will be an ideal response?
For a discount rate of 0%, the present value calculations would be $90 for project one and
$100 for project two; therefore, project two is preferred. At a rate of 10%, the PV of project one
is still $90. For project two, the PV is now 82.6; therefore, project one is preferred.
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Personal income equals disposable personal income plus:
a. personal income taxes. b. transfer payments. c. dividend payments d. personal savings.