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Author Question: Kevin has a lot of free time and he decides to pick up a new hobby. He has two optionshe can take ... (Read 62 times)

faduma

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on: Jun 29, 2018
Kevin has a lot of free time and he decides to pick up a new hobby. He has two optionshe can take art classes or can sign up for French cooking classes.
 
  He estimates that the art classes would cost him 70, and would provide him with a benefit of 100. On the other hand, the cooking classes would cost him 120, but provide him benefits worth 160. Use cost-benefit analysis to arrive at the optimum choice for Kevin.

Question 2

What is the present value of 10,000 to be received after one year, if the current annual rate of interest is 6?
 
  A) 8,644.26
  B) 8,922.34
  C) 9,433.96
  D) 10,000


kjohnson

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Kevin's optimal choice would depend on the net benefits of both options.
Net benefit of taking up art classes = 100 - 70 = 30
Net benefit of taking up cooking classes = 160 - 120 = 40
Therefore, given the costs and benefits involved, Kevin should sign up for the French cooking classes rather than the art classes.

Answer to Question 2

C


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