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Here's what you have to turn in: 1) Your spreadsheet or calculations. 2) Net Present Value of Project 1 using a discount rate of 2.5%. 3) Net Present Value of Project 1 using a discount rate of 8%.

Here's what you have to turn in: 1) Your spreadsheet or calculations. 2) Net Present Value of Project 1 using a discount rate of 2.5%. 3) Net Present Value of Project 1 using a discount rate of 8%.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Costs (millions of $) Construction Recurring costs Foregone recreation Benefits Net NPV @ NPV @ Benefits Increased tourist revenue Project 2. Javaland Coral Mining Costs (millions of $) NPV @ NPV @ 2.5 8 Extraction costs Costs of coastal erosion Revenues from limestone net 2.5 8 Years 0 1 2 3 $4,980.00 4 5 6 7 8 9 10 $1,400.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $4,000.00 $100.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $0.00 $0.00
Transcribed Image Text:Costs (millions of $) Construction Recurring costs Foregone recreation Benefits Net NPV @ NPV @ Benefits Increased tourist revenue Project 2. Javaland Coral Mining Costs (millions of $) NPV @ NPV @ 2.5 8 Extraction costs Costs of coastal erosion Revenues from limestone net 2.5 8 Years 0 1 2 3 $4,980.00 4 5 6 7 8 9 10 $1,400.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $4,000.00 $100.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $0.00 $0.00
In this problem you will examine competing plans for the stewardship of the reefs of Jaxaland. The first plan is to protect the reefs of Javaland by means of a marine park. The marine park requires an initial investment in buildings and boats and recurring expenses for park guards, fuel and so on. The benefits of the marine park would come from increased tourism that the park could sustain beyond what would normally be possible without such park management. The second project envisions large-scale and rapid mining of Jaxaland's reefs for limestone. The reef would be mined and the limestone sold in the first year. Unfortunately, the reef destruction that results from the mining would cause increased beach erosion, and this would be a direct cost for the economy. The spreadsheet on the next page states all the costs and benefits of the two projects over the next ten years (an eternity by Jaxaland standards). Your job is to determine which project is the best. (Remember, Jaxaland cares only about the world as defined in this spreadsheet - no additional values here!) To complicate your life, it is unclear whether the discount rate for Jaxaland is 2.5% or 8%, so you must do the calculations for both. Here's what you have to turn in: 1) Your spreadsheet or calculations. 2) Net Present Value of Project 1 using a discount rate of 2.5%. 3) Net Present Value of Project 1 using a discount rate of 8%. 4) Net Present Value of Project 2 using a discount rate of 2.5%. 5) Net Present Value of Project 2 using a discount rate of 8% 6) Which project do you choose using a discount rate of 2.5%? 7) Which project do you choose using a discount rate of 8%? 8) Explain the implications of your results. What rate does Jaxaland choose and why? Why might Jaxaland choose to do the analysis this discount rate over the other? Be specific. In other words, if politicians of Jaxaland argue for one rate as most appropriate, what would/could influence their decision? What would the arguments be based on? (Here, write a few sentences that reflect your understanding of discounting and time preference.) Hint: One $ total being greater than another across different rates is NOT a correct answer. You cannot compare dollars across rates.) Please present your answers clearly and separate from you spreadsheet. Remember: Net benefits = total benefits - total costs Net present value (NPV) = present value of (benefits - costs) Please show all of your work. Be sure to write out your equations and calculations. If you use a spreadsheet, then you must also show how you would have done the calculations manually, that is, write out the equation you used.
Transcribed Image Text:In this problem you will examine competing plans for the stewardship of the reefs of Jaxaland. The first plan is to protect the reefs of Javaland by means of a marine park. The marine park requires an initial investment in buildings and boats and recurring expenses for park guards, fuel and so on. The benefits of the marine park would come from increased tourism that the park could sustain beyond what would normally be possible without such park management. The second project envisions large-scale and rapid mining of Jaxaland's reefs for limestone. The reef would be mined and the limestone sold in the first year. Unfortunately, the reef destruction that results from the mining would cause increased beach erosion, and this would be a direct cost for the economy. The spreadsheet on the next page states all the costs and benefits of the two projects over the next ten years (an eternity by Jaxaland standards). Your job is to determine which project is the best. (Remember, Jaxaland cares only about the world as defined in this spreadsheet - no additional values here!) To complicate your life, it is unclear whether the discount rate for Jaxaland is 2.5% or 8%, so you must do the calculations for both. Here's what you have to turn in: 1) Your spreadsheet or calculations. 2) Net Present Value of Project 1 using a discount rate of 2.5%. 3) Net Present Value of Project 1 using a discount rate of 8%. 4) Net Present Value of Project 2 using a discount rate of 2.5%. 5) Net Present Value of Project 2 using a discount rate of 8% 6) Which project do you choose using a discount rate of 2.5%? 7) Which project do you choose using a discount rate of 8%? 8) Explain the implications of your results. What rate does Jaxaland choose and why? Why might Jaxaland choose to do the analysis this discount rate over the other? Be specific. In other words, if politicians of Jaxaland argue for one rate as most appropriate, what would/could influence their decision? What would the arguments be based on? (Here, write a few sentences that reflect your understanding of discounting and time preference.) Hint: One $ total being greater than another across different rates is NOT a correct answer. You cannot compare dollars across rates.) Please present your answers clearly and separate from you spreadsheet. Remember: Net benefits = total benefits - total costs Net present value (NPV) = present value of (benefits - costs) Please show all of your work. Be sure to write out your equations and calculations. If you use a spreadsheet, then you must also show how you would have done the calculations manually, that is, write out the equation you used.
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In this problem you will examine competing plans for the stewardship of the reefs of Jaxaland. The first plan is to protect the reefs of Javaland by means of a marine park. The marine park requires an initial investment in buildings and boats and recurring expenses for park guards, fuel and so on. The benefits of the marine park would come from increased tourism that the park could sustain beyond what would normally be possible without such park management. The second project envisions large-scale and rapid mining of Jaxaland's reefs for limestone. The reef would be mined and the limestone sold in the first year. Unfortunately, the reef destruction that results from the mining would cause increased beach erosion, and this would be a direct cost for the economy. The spreadsheet on the next page states all the costs and benefits of the two projects over the next ten years (an eternity by Jaxaland standards). Your job is to determine which project is the best. (Remember, Jaxaland cares only about the world as defined in this spreadsheet - no additional values here!) To complicate your life, it is unclear whether the discount rate for Jaxaland is 2.5% or 8%, so you must do the calculations for both. Here's what you have to turn in: 1) Your spreadsheet or calculations. 2) Net Present Value of Project 1 using a discount rate of 2.5%. 3) Net Present Value of Project 1 using a discount rate of 8%. 4) Net Present Value of Project 2 using a discount rate of 2.5%. 5) Net Present Value of Project 2 using a discount rate of 8% 6) Which project do you choose using a discount rate of 2.5%? 7) Which project do you choose using a discount rate of 8%? 8) Explain the implications of your results. What rate does Jaxaland choose and why? Why might Jaxaland choose to do the analysis this discount rate over the other? Be specific. In other words, if politicians of Jaxaland argue for one rate as most appropriate, what would/could influence their decision? What would the arguments be based on? (Here, write a few sentences that reflect your understanding of discounting and time preference.) Hint: One $ total being greater than another across different rates is NOT a correct answer. You cannot compare dollars across rates.) Please present your answers clearly and separate from you spreadsheet. Remember: Net benefits = total benefits - total costs Net present value (NPV) = present value of (benefits - costs) Please show all of your work. Be sure to write out your equations and calculations. If you use a spreadsheet, then you must also show how you would have done the calculations manually, that is, write out the equation you used.
Transcribed Image Text:In this problem you will examine competing plans for the stewardship of the reefs of Jaxaland. The first plan is to protect the reefs of Javaland by means of a marine park. The marine park requires an initial investment in buildings and boats and recurring expenses for park guards, fuel and so on. The benefits of the marine park would come from increased tourism that the park could sustain beyond what would normally be possible without such park management. The second project envisions large-scale and rapid mining of Jaxaland's reefs for limestone. The reef would be mined and the limestone sold in the first year. Unfortunately, the reef destruction that results from the mining would cause increased beach erosion, and this would be a direct cost for the economy. The spreadsheet on the next page states all the costs and benefits of the two projects over the next ten years (an eternity by Jaxaland standards). Your job is to determine which project is the best. (Remember, Jaxaland cares only about the world as defined in this spreadsheet - no additional values here!) To complicate your life, it is unclear whether the discount rate for Jaxaland is 2.5% or 8%, so you must do the calculations for both. Here's what you have to turn in: 1) Your spreadsheet or calculations. 2) Net Present Value of Project 1 using a discount rate of 2.5%. 3) Net Present Value of Project 1 using a discount rate of 8%. 4) Net Present Value of Project 2 using a discount rate of 2.5%. 5) Net Present Value of Project 2 using a discount rate of 8% 6) Which project do you choose using a discount rate of 2.5%? 7) Which project do you choose using a discount rate of 8%? 8) Explain the implications of your results. What rate does Jaxaland choose and why? Why might Jaxaland choose to do the analysis this discount rate over the other? Be specific. In other words, if politicians of Jaxaland argue for one rate as most appropriate, what would/could influence their decision? What would the arguments be based on? (Here, write a few sentences that reflect your understanding of discounting and time preference.) Hint: One $ total being greater than another across different rates is NOT a correct answer. You cannot compare dollars across rates.) Please present your answers clearly and separate from you spreadsheet. Remember: Net benefits = total benefits - total costs Net present value (NPV) = present value of (benefits - costs) Please show all of your work. Be sure to write out your equations and calculations. If you use a spreadsheet, then you must also show how you would have done the calculations manually, that is, write out the equation you used.
Costs (millions of $) Construction Recurring costs Foregone recreation Benefits Net NPV @ NPV @ Benefits Increased tourist revenue Project 2. Javaland Coral Mining Costs (millions of $) NPV @ NPV @ 2.5 8 Extraction costs Costs of coastal erosion Revenues from limestone net 2.5 8 Years 0 1 2 3 $4,980.00 4 5 6 7 8 9 10 $1,400.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $4,000.00 $100.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $0.00 $0.00
Transcribed Image Text:Costs (millions of $) Construction Recurring costs Foregone recreation Benefits Net NPV @ NPV @ Benefits Increased tourist revenue Project 2. Javaland Coral Mining Costs (millions of $) NPV @ NPV @ 2.5 8 Extraction costs Costs of coastal erosion Revenues from limestone net 2.5 8 Years 0 1 2 3 $4,980.00 4 5 6 7 8 9 10 $1,400.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $250.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $20.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $400.00 $4,000.00 $100.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $125.00 $0.00 $0.00
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