4. Calculate the net present value (NPV) for the two projects using a 5% and a 10% discount rate. Which project should be undertaken? Project 1. Gringoland Marine Park Years 0 1 2 3 4 5 6 7 8 9 10 Costs (thousands of $) Construction 1250 Recurring costs 130 130 130 130 130 130 130 130 130 130 Foregone recreation 20 20 20 20 20 20 20 20 20 20 20 Benefits Increased tourist revenue 300 300 300 300 300 300 300 300 300 300 300 Net NPV @ 5% NPV @ 10% Project 2. Gringoland Coral Mining Costs (thousands of $) Extraction costs 3000 Costs of coastal erosion 200 200 200 200 200 200 200 200 200 200 200 Benefits Revenues from limestone 4500 Net NPV @ 5% NPV @ 10%Answers: Project 1. Gringoland Marine Park Years 0 1 2 3 4 5 6 7 8 9 10 Costs (thousands of $) Construction 125 0 Recurring costs 130 130 130 130 130 130 130 130 130 130 Foregone 20 20 20 20 20 20 20 20 20 20 20 recreation Benefits Increased tourist 300 300 300 300 300 300 300 300 300 300 300 revenue Net 150 150 150 150 150 150 150 150 150 : 150 970 NPV @ 5 - 142. 136. 129.5 123.4 117. 111. 106.6 101. 96.6 92.08 188.26 970 86 05 8 1 53 93 53 91 7 NPV @ 10 136. 123. 112.7 102.4 93.1 84.6 76.97 69.9 63.6 57.83 -48.31 970 36 97 5 38 71 4 76 15 1NPV @ 5 142. 136. 129.5 123.4 117. 111. 106.6 101. 96.6 92.08 188.26 970 86 05 8 1 53 93 53 91 7 NPV @ 10 136. 123. 112.7 102.4 93.1 84.6 76.97 69.9 63.6 57.83 -48.31 970 36 97 5 38 71 4 76 15 1 Project 2. Gringoland Coral Mining Years 0 1 2 3 4 5 6 7 8 9 10 Costs (thousands of $) Extraction costs 300 0 Costs of coastal 200 200 200 200 200 200 200 200 200 200 200 erosion Benefits Revenues from 450 limestone 0 Net 130 -200 -200 -200 -200 -200 -200 -200 -200 -200 -200 0 NPV @ 5 130 -122.8 -244.35 0 190. 181. 172.8 164.5 156. 149. 142.1 135. 128. NPV @ 10 5 4 7 2 4 9 71.09 130 - -77.11 0 181. 165. 150.3 136.6 124. 112. 102.6 93.3 84.8 8 3 2 9 2 Hence if the discount rate is 5%, the Marine Park project should be undertaken and if the discount rate is 10%, the Coral Mining project should be undertaken