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  3. the net present value of an investment is the difference...

Question: the net present value of an investment is the difference...

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The net present value of an investment is the difference between the receipts and the costs, discounted to the present in each case. Assume you can invest $2000 today in home energy efficiency improvements. Your savings come in year for year over a time period of ten years at $300/year (then you might have to do some additional work, so we’ll only count that period). What is the net present value of the project? If positive, it is worthwhile; if negative, it is not. Assume a discount rate of 7%. How does this change if you have a more far-sighted nature and a discount rate of 5%? What about if you are very impatient and your effective (behavioral) discount rate is 25%? Explain the differences and their implications for choosing to make investments.

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