# Example: Consider two projects

Example:

Consider two projects. The first project pays benefits of \$90today and nothing else. The second project pays nothing today,nothing one year from now, but \$100 two years from now. Whichproject would be preferred if the discount rate were 2%? What ifthe rate increased to 10%?

– For a discount rate of 2%, the present value calculationswould be \$90 for project one and \$96.12 for project two; therefore,project two is preferred. At a rate of 10%, the PV of project oneis still \$90. For project two, the PV is now 100/1.1^2= 82.6;therefore, project one is preferred.

———————————————————————————————————————————————————

How can I solve this questionsbelow???????????????????????????????????

Consider two projects. The first project pays benefits of \$90today and nothing else. The second project pays nothing today,nothing one year from now, but \$100 two years from now. Whichproject would be preferred if the discount rate were 2%? What ifthe rate increased to 8%?

CASE 1

Discount rate = 2% or 0.02

The first project pays benefit of\$90 today.

The present value of benefitreceived today is amount itself.

Thus,

The present value ofbenefits from first project is \$90.

The second project pays \$100 twoyears from now.

Calculate the present value –

PV = \$100/(1+0.02)2 =\$100/(1.02)2 = \$100/1.0404 = \$96.12

The present value ofbebefits from Project 2 is \$96.12

The present value ofbenefits from Project 2 is higher.

So, at discount rate of 2%,Project 2 would be preferred.

CASE 2

Discount rate = 8% or 0.08

The first project pays benefit of\$90 today.

The present value of benefitreceived today is amount itself.

Thus,

The present value ofbenefits from first project is \$90.

The second project pays \$100 twoyears from now.

Calculate the present value –

PV = \$100/(1+0.08)2 =\$100/(1.08)2 = \$100/1.1664 = \$85.73

The present value ofbebefits from Project 2 is \$85.73

The present value ofbenefits from Project 1 is higher.

So, at discount rate of 8%,Project 1 would be preferred.

##### "Our Prices Start at \$11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
Calculate the price
Pages (550 words)
\$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with brilliantassignmenthelp.com
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat