ECN$606$

Cost Benefit Analysis

A project has an initial cost of $1,000$ and yields benefit of $300$ for $5$ years. It then

has a cost of $300$ in year $6($a decommissioning cost$).$

$($i$)$ Should the project be implemented if the discount rate is $5\%?($use two decimal

points in your calculations$)$

$($ii$)$ Can the decommissioning cost affect the net present value $($NPV$),$ and hence

the decision to implement the project?

$[5$ marks$]$