22. If a project begins producing benefits a year from now, and yields a level B...
22. If a project begins producing benefits a year from now, and yields a level B of
benefits each year forever, the present discounted value of the benefits of the project
is
a) infinite.
b) infinite unless there is risk and the benefits are discounted by a risk factor.
c) B/r, where r is the discount rate.
d) B/(1+ r), where r is the discount rate.
Homework Answers
Option D (B/(1+ r), where r is the discount rate) is correct.
The present discounted value of the project is B/(1+r) because the present discount value is calculated by dividing the future sun of money recived by 1 plus r times the year. In the given case, the benefit of B is recived every year i future so the future sum of money is B and the interest rate is r.
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22. If a project begins producing benefits a year from now, and
yields a level B...
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