TAILIEUCHUNG - Lecture Public finance (10/e): Chapter 8 - Harvey S. Rosen, Ted Gayer

Chapter 8 - Cost-benefit analysis. The main contents of the chapter consist of the following: Projecting present dollars into the future, projecting future dollars into the present, present value of a stream of money, private sector project evaluation,. | COST-BENEFIT ANALYSIS Chapter 8 Projecting Present Dollars into the Future R=$ T=years r=interest rate How much will $1000 earn in 2 years at an interest rate of 10%? R0 = $1000 R1 = $1000*(1+.01) = $1010 R2 = $1010*(1+.01) = $ R2 = $1000*(1+.01)2 = $ RT = R0*(1+r)T 8- one click per line Projecting Future Dollars into the Present How much will $1000 earned in 2 years at an interest rate of 10% be worth today? Since RT = R0*(1+r)T R0 = RT/(1+r)T Present Value discount rate discount factor Low r – more future-oriented and benefits projects in which returns are concentrated further into the future High r – more present-oriented and benefits projects in which returns are concentrated closer into the future 8- 5 lines visible 1st click – 6th line 7th click – “Present Value” 8th click – “discount rate” 9th click ‘ discount rate arrow disappears, bracket appears, “discount factor” Present Value of a Stream of Money 8- Inflation How to incorporate .

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• Public finance
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• Public expenditure
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