Imagine that you are faced with three alternative projects, each of which costs $1,000. Assuming the discount rate of 15 percent, calculate the following for each of the projects: Discounted Benefits, Discounted Costs, Net Present Value (NPV) and Benefit Cost Ratio (BCR). Which one of these projects would you choose to undertake based on the BCR? Explain your answer.
a. A bridge which takes five years to build, then yields $500 benefit per year for the next 10 years. All benefits are received at the end of the year. Assume that the costs are spread out evenly over the first five years and are paid at the end of each year.
b. Temporary classrooms for schools yielding $500 benefit per year for three years. All benefits are received at the end of the year. Assume that all costs are paid at the end of year 1.
c. Tax breaks per year to a foreign auto manufacturer for a new auto plant yielding $200 annual benefit for 30 years. All benefits are received at the end of the year. Assume that all costs are paid up front.