Now a little more complex situation. Assume you work for the South Carolina Department of Natural...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Now a little more complex situation. Assume you work for the South Carolina Department of Natural Resources and have been asked to determine if it is wise to use scarce tax dollars to construct of a new reservoir that would provide flood control benefits in the fall and winter months and reservoir releases for instream flows and agricultural uses in the spring and summer months. Further, assume that construction cost is $30 million evenly spread over the first six years of the project ($5 million in the initial year (year 0) and another $5 million dollars per year in years 1, 2, 3, 4, 5). After constructed, the reservoir will provide an annual net benefit (difference between annual benefit and annual operating cost) of $1.75 million, for years 6 through 49. You are asked to calculate the net present value of the reservoir project using two alternative annual interest rates where interest is compounded once each year. Should the reservoir be constructed if the annual interest rate is 4 percent? Should the reservoir be constructed if the annual interest rate is 9%? Hint recall that initial costs are not a benefit and should be assigned a negative sign in the net present value calculation. Moreover, the year 0 cost is not discounted since it is incurred immediately! (10 points) Now a little more complex situation. Assume you work for the South Carolina Department of Natural Resources and have been asked to determine if it is wise to use scarce tax dollars to construct of a new reservoir that would provide flood control benefits in the fall and winter months and reservoir releases for instream flows and agricultural uses in the spring and summer months. Further, assume that construction cost is $30 million evenly spread over the first six years of the project ($5 million in the initial year (year 0) and another $5 million dollars per year in years 1, 2, 3, 4, 5). After constructed, the reservoir will provide an annual net benefit (difference between annual benefit and annual operating cost) of $1.75 million, for years 6 through 49. You are asked to calculate the net present value of the reservoir project using two alternative annual interest rates where interest is compounded once each year. Should the reservoir be constructed if the annual interest rate is 4 percent? Should the reservoir be constructed if the annual interest rate is 9%? Hint recall that initial costs are not a benefit and should be assigned a negative sign in the net present value calculation. Moreover, the year 0 cost is not discounted since it is incurred immediately! (10 points)
Expert Answer:
Answer rating: 100% (QA)
SOLUTION To determine whether it is financially viable to construct the reservoir we need to calculate the net present value NPV of the project using ... View the full answer
Related Book For
Statistics For Business And Economics
ISBN: 9780132745659
8th Edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date:
Students also viewed these finance questions
-
BACKGROUND You are an information analyst working for NEE. The company president has asked you to prepare a Quantitative analysis of financial, sales, and operations data to help determine which...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The Taos Museum of Southwestern Arts and Crafts (TMSAC) presents rotating exhibits of the works of artists and artisans from the Southwestern United States. Historically, the museum has derived its...
-
North Folk Dairy has an unused bank revolving credit of $50 million. North Folk Dairys vendor provided an invoice in the amount of $100,000 with payment terms of 2/10, net 45. Compute the nominal...
-
Cruise Corporation had outstanding 100,000 shares of no-par common stock. On January 10, 2011, Dock Company purchased a block of these shares in the open market at $20 per share for long-term...
-
Describe the process of glycolysis. Is ATP produced during glycolysis?
-
The contingency table shown relates happiness and gender for the 2018 GSS. (You can enter the counts from the table in the second tab of the Explore Categorical Variables app to answer most of the...
-
The standard cost card for the single product manufactured by Prince Company is given below: Standard Cost Card'Per Unit Direct materials, 3.5 feet at $4 per foot . . . . . . . . . . . . . . . . . ....
-
There are few areas as controversial as the use of deadly force by police officers who are attempting to apprehend a fleeing suspect. The current fleeing felon rule authorizes the police to use...
-
The following data is provided for Garcon Company and Pepper Company for the year ended December 31. Garcon Company $ 12,000 14,500 7,250 27,000 19,000 17,650 22,000 Finished goods inventory,...
-
Kish plc issued 6 million 7% convertible bonds on 1 January 2016 at par. The bonds are redeemable at par on 31 December 2019 or convertible at that date on the basis of two 1 ordinary shares for...
-
Read all words in a file and group them by the first letter (in lowercase). Print the average word length for each initial letter. Use collect and Collectors.groupingBy.
-
Describe five different ways of producing an IntStream. Which of them can be adapted to producing a DoubleStream?
-
Write a static generic method: that returns a list of the values returned by the function when called with arguments in the values list. List map (List values, Function f)
-
Give a SQL query that lists all customers not in Hawaii. Invoice Invoice_ Number INTEGER 11731 11732 11733 Customer_ Number INTEGER 3175 3176 3175 Payment DECIMAL (10, 2) 0 249.50 0
-
Modify the WebGet program to print only the title of the returned HTML page. An HTML page has the structure ... ... For example, if you run the program by typing at the command line java WebGet...
-
What might taking a stance against his CEO mean for Ankit's career at IvoryTower and beyond? (can from case or personal idea) 60-100 words Ankits deputy Case Study Should We Embrace Crypto? by...
-
Write the expression in radical notation. Then evaluate the expression when the result is an integer. 23 -1/2
-
Determine an appropriate interval width for a random sample of 110 observations that fall between and include each of the following: a. 20 to 85 b. 30 to 190 c. 40 to 230 d. 140 to 500
-
Describe graphically the time (in hours) that 20 students studied for a statistics test. 6.5 5.8 4.5 6.2 4.8 7.3 4.6 3.9 4.4 5.5 5.2 6.7 3.0 2.4 5.0 3.6 2.9 4.0 2.8 3.6
-
Given a simple regression analysis, suppose that we have obtained a fitted regression model y`i = 12 + 5xi and also Find the 95% confidence interval and 95% prediction interval for the point where x...
-
Determine the probability mass function of \(X\) from the following cumulative distribution function: \[ F(x)=\left\{\begin{array}{lr} 0 & x. \] Figure 3.3 displays a plot of \(F(x)\). From the plot,...
-
The probability that a wafer contains a large particle of contamination is 0.01. If it is assumed that the wafers are independent, what is the probability that exactly 125 wafers need to be analyzed...
-
Two new product designs are to be compared on the basis of revenue potential. Marketing believes that the revenue from design A can be predicted quite accurately to be \(\$ 3\) million. The revenue...
Study smarter with the SolutionInn App