A government has proposals for eight alternative investments (A through to H below). The benefits and...

 

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A government has proposals for eight alternative investments (A through to H below). The benefits and costs, as $million present values (PV) of each are as follows: Alternative A B C H PV(B) 20 50 50 30 40 48 70 55 PV(C) 10 15 20 5 50 40 50 50 The costs include both initial investment costs and annual operating costs: a) Which alternatives should be adopted if funds are unconstrained/ unlimited? Why? b) Now assume that all costs must be met from a constrained /limited budget. Also assume that any monies left over from the funds would be returned to the central funding agency, and the budget does not have to be exhausted. Which should be adopted if funds are limited to $100 million? For simplicity, assume that it is the present value of costs, which is constrained to $100 million. c) Explain why your choice of alternatives in (b) maximises net benefits from the $100 million. A government has proposals for eight alternative investments (A through to H below). The benefits and costs, as $million present values (PV) of each are as follows: Alternative A B C H PV(B) 20 50 50 30 40 48 70 55 PV(C) 10 15 20 5 50 40 50 50 The costs include both initial investment costs and annual operating costs: a) Which alternatives should be adopted if funds are unconstrained/ unlimited? Why? b) Now assume that all costs must be met from a constrained /limited budget. Also assume that any monies left over from the funds would be returned to the central funding agency, and the budget does not have to be exhausted. Which should be adopted if funds are limited to $100 million? For simplicity, assume that it is the present value of costs, which is constrained to $100 million. c) Explain why your choice of alternatives in (b) maximises net benefits from the $100 million.

Answer rating: 100% (QA)

a UnconstrainedUnlimited Funds Alternative A PVB 20 million PVC 10 million Alternative B PVB 50 million PVC 15 million Alternative C PVB 50 million PVC 20 million Alternative D PVB 30 million PVC 5 mi... View the full answer