# 6. The government is considering an early education project for children currently aged three. The project...

6. The government is considering an early education project for children currently aged three. The project involves annual costs of S2500 for 5 years (starting t-1). Annual net benefits of S3000 start in year 15 (once the children reach the age of 22) and last for 20 years. Assume all benefits and costs are incurred at the end of the year. ustrate the timing of benefits and costs using a timeline. (b) (c) There is some uncertainty about the choice of discount rate to use in the analysis. Briefly (a) Find the net present value for this project, assuming a discount rate of 5%. discuss how using a lower discount rate affects the net present value of the project and the likelihood that the project goes forward (no calculations required here).

(c) obviously, by changing the discount rate, the values in the equation for net present value will change and hence the bet present value will change. It can also be deduced intuitively that on decreasing the discount rate, net present value will increase since the benefit terms are of more value(\$3000) and more in number (20) and more later in the timeline than the costs.

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