c) The Selangor state government is seeking a proposal to take over the maintenance of dilapidated low-cost flats in Petaling Jaya. A proposal in Table 2 by its state-owned firm has tabulated net costs and net benefits in monetary value for a 7-year program to improve the tenants' condition. The financing rate is assumed to be 8%, and the salvage value is RM 3.2 million. Year Table 2 Net Benefit Net Cost (RM mil) (RM mil) 0 2.8 1 5.9 2 6.5 3.3 3 5.5 3.3 4 4.5 3.3 5 3.8 2.6 6 3.1 2.6 7 3.1 2.5 1) Based on the tabulated details, determine profitability index of the program. ii) How will the profitability index change if the net cost in year one (1) increases by 30% from the initial estimated amount? iii) Advise the client whether funding the program is worth it.
c) The Selangor state government is seeking a proposal to take over the maintenance of dilapidated low-cost flats in Petaling Jaya. A proposal in Table 2 by its state-owned firm has tabulated net costs and net benefits in monetary value for a 7-year program to improve the tenants' condition. The financing rate is assumed to be 8%, and the salvage value is RM 3.2 million. Year Table 2 Net Benefit Net Cost (RM mil) (RM mil) 0 2.8 1 5.9 2 6.5 3.3 3 5.5 3.3 4 4.5 3.3 5 3.8 2.6 6 3.1 2.6 7 3.1 2.5 1) Based on the tabulated details, determine profitability index of the program. ii) How will the profitability index change if the net cost in year one (1) increases by 30% from the initial estimated amount? iii) Advise the client whether funding the program is worth it.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:c) The Selangor state government is seeking a proposal to take over the maintenance of
dilapidated low-cost flats in Petaling Jaya. A proposal in Table 2 by its state-owned firm has
tabulated net costs and net benefits in monetary value for a 7-year program to improve the
tenants' condition. The financing rate is assumed to be 8%, and the salvage value is RM 3.2
million.
Year
Table 2
Net Benefit
Net Cost
(RM mil)
(RM mil)
0
2.8
1
5.9
2
6.5
3.3
3
5.5
3.3
4
4.5
3.3
5
3.8
2.6
6
3.1
2.6
7
3.1
2.5
1) Based on the tabulated details, determine profitability index of the program.
ii) How will the profitability index change if the net cost in year one (1) increases by 30%
from the initial estimated amount?
iii) Advise the client whether funding the program is worth it.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education