QUESTION 2 Given below in table 1 are hypothetical data on costs and benefits of a...
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QUESTION 2 Given below in table 1 are hypothetical data on costs and benefits of a proposed small mine to be constructed in remote Telefomin district in Sundaun Province. Table 1: Summary of total costs and benefits (K millions) Year 0 1 23 4 5 6 7 450 360 600 540 500 615 Costs 980 750 Benefits 0 290 350 400 450 345 689 990 8 250 2000 Undertake the following: (a) Calculate the NPV, IRR and BCR (use 8% discount rate). Interpret the results. (b) Conduct a sensitivity analysis by reducing the life of the project to 6 years and recalculate the NPV, IRR and BCR (use 10% discount rate). Interpret the results and contrast to (a) above. (c) The above costs and benefits are based on market prices. Explain how you would incorporate externalities or costs and benefits associated with environmental consequences by employing non-market valuation techniques. (d) Calculate the cost effectiveness (CE) ratio if the total impact of the project is valued at K10 billion. Interpret. 0 QUESTION 2 Given below in table 1 are hypothetical data on costs and benefits of a proposed small mine to be constructed in remote Telefomin district in Sundaun Province. Table 1: Summary of total costs and benefits (K millions) Year 0 1 23 4 5 6 7 450 360 600 540 500 615 Costs 980 750 Benefits 0 290 350 400 450 345 689 990 8 250 2000 Undertake the following: (a) Calculate the NPV, IRR and BCR (use 8% discount rate). Interpret the results. (b) Conduct a sensitivity analysis by reducing the life of the project to 6 years and recalculate the NPV, IRR and BCR (use 10% discount rate). Interpret the results and contrast to (a) above. (c) The above costs and benefits are based on market prices. Explain how you would incorporate externalities or costs and benefits associated with environmental consequences by employing non-market valuation techniques. (d) Calculate the cost effectiveness (CE) ratio if the total impact of the project is valued at K10 billion. Interpret. 0
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a Discount Rate NPV IRR BCR b Discount Rate NPV IRR C BCR d CE Ratio 1016 O C There are many factors ... View the full answer
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