2. Suppose there is a plot of land in Balik Pulau which the state government is considering developing. The first proposal is to use the land to create an open-space camping area and another proposal is to develop into a cultural heritage area. The open space camping area is expected to last 12 years while the cultural heritage area is expected to have a life span of 20 years. The net present value of the open space camping area is RM4.5 million while the net present value of the cultural heritage area is RM3 million. Assume the discount rate is 5%. a) Using the roll-over method, which project will be chosen? b) Using the equivalent annual net benefit (EANB) method, which project will be chosen?
2. Suppose there is a plot of land in Balik Pulau which the state government is considering developing. The first proposal is to use the land to create an open-space camping area and another proposal is to develop into a cultural heritage area. The open space camping area is expected to last 12 years while the cultural heritage area is expected to have a life span of 20 years. The net present value of the open space camping area is RM4.5 million while the net present value of the cultural heritage area is RM3 million. Assume the discount rate is 5%. a) Using the roll-over method, which project will be chosen? b) Using the equivalent annual net benefit (EANB) method, which project will be chosen?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Suppose there is a plot of land in Balik Pulau which the state government is considering
developing. The first proposal is to use the land to create an open-space camping area and
another proposal is to develop into a cultural heritage area. The open space camping area is
expected to last 12 years while the cultural heritage area is expected to have a life span of 20
years. The net present value of the open space camping area is RM4.5 million while the net
present value of the cultural heritage area is RM3 million. Assume the discount rate is 5%.
a) Using the roll-over method, which project will be chosen?
b) Using the equivalent annual net benefit (EANB) method, which project will be chosen?
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