Question 3 (20 marks)

Three mutually exclusive projects are being considered for a remote area:

Project A has estimated benefits of $20 million and costs of $10 million;

Project B has estimated benefits of $30 million and costs of $25 million;

Project C has estimated benefits of $25 million and costs of $20 million.

It is assumed that the lives of the three projects are the same and there is no externalities.

a. Calculate the benefit-cost ratio and net benefits for each project. (10 marks)

b. If only one of the three projects can be selected, which should be selected

i) from the firms perspective (5 marks)

ii) from the societys perspective (5 marks)