3. In 2006, the state of Indiana sold a 75 year concession to operate and maintain the East-West Toll Road. Before doing so, it commissioned a consulting report that estimated the value of the concession.
a. Calculate the present value of the concession using a discount rate of 6%.
b. The consultant chose this discount rate because it was the interest rate that the state paid on its bonds. Do you think that this was the correct criterion? Why or why not?
c. How does the value of the concession change if you use a higher discount rate?
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