1. (25 points) Consider a lake clean-up project which is expected to not only purify the...

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1. (25 points) Consider a lake clean-up project which is expected to not only purify the lake, but also to help with the ecosystem over the next 30 years. Therefore, the total benefits (in NZ$) also depend on time: (1) Meanwhile, the project costs $2500 initially, and then $15 every period. Using the cost-benefit analysis methods, answer the following questions: TB, 90+3t, for t = 1, 2, ..., 30. = (a) (5 points) Assuming a 5% discount rate, would you undertake this project? Explain your reasoning. (b) (10 points) What is the internal rate of return? At what discount rate(s) can this project be undertaken? Explain your reasoning. (c) (10 points) Assuming a 2% discount rate, suppose that there is uncertainty in the additional benefits to the ecosystem. More specifically: With probability 0.60 TB = 90+3t, for t = 1, 2, ..., 30 With probability 0.40: TB = 60+5t, for t= 1,2, 30. Explain your final decision about the project. 1. (25 points) Consider a lake clean-up project which is expected to not only purify the lake, but also to help with the ecosystem over the next 30 years. Therefore, the total benefits (in NZ$) also depend on time: (1) Meanwhile, the project costs $2500 initially, and then $15 every period. Using the cost-benefit analysis methods, answer the following questions: TB, 90+3t, for t = 1, 2, ..., 30. = (a) (5 points) Assuming a 5% discount rate, would you undertake this project? Explain your reasoning. (b) (10 points) What is the internal rate of return? At what discount rate(s) can this project be undertaken? Explain your reasoning. (c) (10 points) Assuming a 2% discount rate, suppose that there is uncertainty in the additional benefits to the ecosystem. More specifically: With probability 0.60 TB = 90+3t, for t = 1, 2, ..., 30 With probability 0.40: TB = 60+5t, for t= 1,2, 30. Explain your final decision about the project.

Answer rating: 100% (QA)

a Assuming a 5 discount rate we would not undertake this project This is because the sum of discount... View the full answer