6.1 A dam is proposed on a stretch of wild river, a river that is currently used for recreation.The dam will generate electricity. The dam will have a useful life of 50 years, after whichits reservoir will be full of sediment and the dam will need to be removed. The following arecharacteristics of the dam:Initial Cost: $100,000,000Electricity produced: 100,000 MWh per year at $100/MwhCost of decommissioning dam: $10,000,000Value of recreation lost: $5,000,000 per yearAssume that costs and benefits accrue at the end of each period.a. If the social discount rate is 3% per year, is the dam a good idea?b. If the social discount rate is 10% per year, is the dam a good idea?c. Calculate the "cutoff" discount rate, c, such that the dam is a good idea for discount ratesrc and a bad idea for discount rates r > c.

Step 1:Part a: NPV at a 3% Discount RateGiven:Initial Cost = $100,000,000Annual Net Benefit B =…

Answered: 6.1 A dam is proposed on a stretch of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Ginger has agreed to a lawsuit settlement of $700,000 with a certain pharmaceutical company. The company has offered options to pay her the awarded money. After discussing the terms with the company, she expects that the company should be able to pay her back within 3-5 years Ginger has developed the following estimates Option A B-Pessimistic CMost likely D.Optimistic Delay period 5 years 4 years 3years Cash Flow Estimates, S $700.000 now $151.000 per year for every year the payment is delayed $173.200 per year for every year the payment is delayed $234.500 per year for every year the payment is delayed If her personal MARR is 15% per year, what is the present worth of each of her options? Option A-PW: Option B- PW: Option C- PW: Option D PW: 2. With respect to her personal MARR, which option should she select?
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