QUESTION 4 10 If you are investigating the impacts of a Global, and very long la

Question

QUESTION 4 10 If you are investigating the impacts of a Global, and very long lasting toxic pollutant. When trying to assess the relative Present Values of current and future Benefits and Costs, if your analysis is based on the idea that Future impacts (in Benefits and Costs terms) need to be given almost as much value as Current Impacts--which Discount Rate might you pick, and why? o 1%--because you want Future values to have almost as much weight as current values 100%--because otherwise it will be impossible to justify the large current capital investments needed to deal with this pollutant 30%--because you want Future values to have almost as much weight as Current values 15%--because you do not want Future people to be burdened by the results of current decisions

Explanation / Answer

The present value of future benefits is inversely proportional to the discount rate i.e. the lower the discount rate the higher the present value of future benefits and vice versa.

For example the present value of future benefit of $ 100 after 1 year at 10% discount rate= 100/1.1= $ 90.9

but at 20% discoun rate it will be = 100/1.2 = $ 83.34

4. 1% - because you want Future values to have as much weight as Current values.

With the lower discount rate the present value of Future benefits will not be discounted much and will have almost equal weight as of current values.

5.A) - The discount rate rising means the Present Value of the Infinite stream of Benefits is going to fall-- this implies that in our calculation we are wanting to place smaller values on paymnets received in future

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