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Question: Net Present Value (3 points total)
The city of Corvallis is deciding whether or not to undertake a project to improve the quality ofthe city's drinking water. The project would require an immediate payment of $20,000 toinstall a new filtration system. This filtration system will require yearly maintenance costs of$1,000 after the initial period. The filtration system will be operational for 5 years. The benefits in first year are $500. At the end of year 2, the benefit received is $4000. For years 3, 4,and 5, the benefit received is $7,000. Assume that the discount rate is 6%.
a. Write out the general mathematical formula you would use to determine the net present value (NPV) of this project.
b. Plug-in the appropriate numbers into the formula from above. You DO NOTneed to calculate the answer, simply plug in the values in the appropriateplaces.
c. After calculating the NPV, what criteria should the city use to decide if theyshould install the filtration system or not?
The price of gasoline can vary considerably across states in the US. The US national average price per gallon last month was $3.55. Do you think that the price of gas in Miami is more or less expensive than the national average? A representative surv..
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Two countries, Richland and Poorland, are described by the Solow growth model. They have the same production function F(K,N) = KaN1-a. Richland saves 32% of its income, Poorland saves 10%. Richland has a population growth rate of 1% per year, P..
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