00:01
So here we need to do some discounting, right? and we're thinking about project a versus project b.
00:06
Now, a gives us $34 ,000 a year.
00:09
So we get $34 ,000, and we get another $34 ,000.
00:14
And we get another $34 ,000.
00:18
Now we have the discount these, right? because all these payments are not equal, right? it's better to get the money fast because you could invest it or enter an interest or do something with it, right? we're given the discount rate.
00:31
So the first year's payments at the original discount rate are worth 11 .7 % less.
00:38
And in two years, they're worth 11 .7 % less three times twice and then three times, right? similarly, if we were using the higher discount rate, we would be discounting at 13 .5%.
00:54
So we would get the following expression for the discounted sum of the benefits due to project a.
01:04
So i'm going to put both of these in the calculator.
01:09
And for the first one, i get 82 ,000 and 85 and 10 cents.
01:16
For the second one, we're doing something very similar, right? you put it in the calculator in exactly the same way.
01:23
And when i do that, i'm going to get a smaller number because we're discounting those future cash flows more aggressively, right? those future payments are worth slightly less.
01:32
So i get 79 ,602 and 51 cents.
01:38
Now, for b, it's even easier, right? because b is just a cash loan...