Choose from the methods listed below to answer the following questions.
a. net present value
b. net present cost
c. annualized cost
d. break-even
e. internal rate of return
f. cost-benefit analysis
1. The Public Water Works Department (PWW) is trying to decide whether to replace the crumbling water pipes below Metro City’s streets with plastic pipe that it believes will last 30 years or the more expensive concrete pipe that has a useful life of 100 years. PWW should use the _________ method to choose between the two alternatives.
2. The Independent Advisory Commission (IAC) is evaluating the economic viability of Metro’s proposed bid for the 2027 Olympics. Proponents of the games argue that the Olympics will generate substantial economic benefits for the city. Opponents point to the high cash outlays associated with the bid and subsequent costs of hosting the games. IAC should use the _________ method to evaluate the financial implications of Metro’s bid for the Olympics.
3. The _________ is the discount rate that sets the present value of the cash inflows from a project equal to the present value of the cash outflows from a project.
4. If you were asked to analyze the state’s decision to invest $100 million in a new auto plant, where state officials expect their investment to generate future tax revenues and other economic and social benefits, you would do a(n) _________.
5. The _________ method is used to evaluate decisions where there are no incremental cash inflows and all alternatives have the same useful lives.
6. The _________ method is used to evaluate investments that generate both cash inflows and cash outflows.