This question is about project appraisal Cost Year 2023 2024 2025 500,000 0 0 Productivity Output...

 

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This question is about project appraisal Cost Year 2023 2024 2025 500,000 0 0 Productivity Output from Gain increased Labour Force 0 100,000 100,000 0 200,000 200,000 Total Production Benefits 0 300,000 300,000 Value of Health 0 100,000 100,000 Total Economic Benefits 0 400,000 400,000 Suppose a project is being planned for 2023 that is aimed at the prevention of health problems, through insect control. The initial investment in the project is $500,000 (measured in local currency units for this hypothetical country). It is expected that this project will reduce the incidence of the disease in question for two years. In economic terms, the benefits of the project are: 1) an increase in production due to better worker productivity, as well as an increase in the labour force due to lower morbidity. 2) the direct value of better health itself. The table above shows the estimates of these benefits. Note that the initial cost of the project does not need to be discounted; the 2024 benefits are to be discounted one year and the 2025 benefits are to be discounted 2 years. Officials of the government involved in funding the project are of the opinion that the direct health benefits are too subjective to be included and that the analysis should be limited to the production benefits alone. If so, a) What is the net present value of the project? Assume a 15% discount rate. Would this project be undertaken? (4 Marks) b) What is the net present value of the project using a 10% discount rate. Would this project be undertaken? (4 Marks) c) To the nearest percentage point, what is the internal rate of return of the project? (That is to say, the discount rate for which net present value is 0.) (2 Marks) This question is about project appraisal Cost Year 2023 2024 2025 500,000 0 0 Productivity Output from Gain increased Labour Force 0 100,000 100,000 0 200,000 200,000 Total Production Benefits 0 300,000 300,000 Value of Health 0 100,000 100,000 Total Economic Benefits 0 400,000 400,000 Suppose a project is being planned for 2023 that is aimed at the prevention of health problems, through insect control. The initial investment in the project is $500,000 (measured in local currency units for this hypothetical country). It is expected that this project will reduce the incidence of the disease in question for two years. In economic terms, the benefits of the project are: 1) an increase in production due to better worker productivity, as well as an increase in the labour force due to lower morbidity. 2) the direct value of better health itself. The table above shows the estimates of these benefits. Note that the initial cost of the project does not need to be discounted; the 2024 benefits are to be discounted one year and the 2025 benefits are to be discounted 2 years. Officials of the government involved in funding the project are of the opinion that the direct health benefits are too subjective to be included and that the analysis should be limited to the production benefits alone. If so, a) What is the net present value of the project? Assume a 15% discount rate. Would this project be undertaken? (4 Marks) b) What is the net present value of the project using a 10% discount rate. Would this project be undertaken? (4 Marks) c) To the nearest percentage point, what is the internal rate of return of the project? (That is to say, the discount rate for which net present value is 0.) (2 Marks)

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Answers a Discount rate of 15 Initial cost 500000 Total Production benefit Year1 300000 Total Production benefit Year2 300000 Calculating NPV ABC Corporation Net Present Value Initial investment 50000... View the full answer