Suppose the potential private sector PPP participant is concerned about the riskiness of the project. They...

 

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Suppose the potential private sector PPP participant is concerned about the riskiness of the project. They see the major risk being in the annual increment of visits to the clinic. They see the annual increment of visits being subject to a draw from a normal distribution, with same growth rate of visits on average, but with a standard deviation of 20. They say they have completed the analysis with 10 replications, and found that the NPV was negative in four of the trials. As a result, they want more support from the government, either as a larger subsidy, or an up-front cash grant. a. Replicate their analysis, with 10 replications. In how many cases did you get negative NPVs? What was the average NPV, across all your trials? (Hint: in Excel, to take a draw from a normal distribution one uses NORM.INV(RAND(), mean, standard deviation).) b. What is the problem with this analysis, and how would you correct it? Suppose the potential private sector PPP participant is concerned about the riskiness of the project. They see the major risk being in the annual increment of visits to the clinic. They see the annual increment of visits being subject to a draw from a normal distribution, with same growth rate of visits on average, but with a standard deviation of 20. They say they have completed the analysis with 10 replications, and found that the NPV was negative in four of the trials. As a result, they want more support from the government, either as a larger subsidy, or an up-front cash grant. a. Replicate their analysis, with 10 replications. In how many cases did you get negative NPVs? What was the average NPV, across all your trials? (Hint: in Excel, to take a draw from a normal distribution one uses NORM.INV(RAND(), mean, standard deviation).) b. What is the problem with this analysis, and how would you correct it?

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What was the average NPV across all your trials Hint in Excel to take a draw from a normal distribution one uses NORMINVRAND mean standard deviation b ... View the full answer