This question conoerns BCA for building a permanent dam. The cost of constructing the permanent dam (l.e, a dam that is expected to last forever) is S425 million The annual benefits will depend on the amount of rainfall: $18 milion in a "dry" year, $20 milion in a wet year, and $52 million in a "food" year. Meteorological records indicate that over the last 100 years there have been 86 "dry years, 12 wet" years, and 2 lood" years. Assume the annual benefts, measured in real dollars, begin to accrue at the end of the frst year a Using the meteorological records as a basis for prediction, what are the present value expected net benetts of the dam if the real diucount rate is 5 percent b. is it officient to build the dam? Why or why not? e. is your conclusion sensitive to the assumed discount rate or is it robust? To answer tis question, use the federal government guidelnes which currerdy requires agmoes to do their caloulations using a 3% discount rate and also a 7% discount rate d. Another way to investigate this sensitivity is to cakoulate the break even vale for the discount rate. Calculate this value and agan decide if the concknion is robust regarding the discount rate
This question conoerns BCA for building a permanent dam. The cost of constructing the permanent dam (l.e, a dam that is expected to last forever) is S425 million The annual benefits will depend on the amount of rainfall: $18 milion in a "dry" year, $20 milion in a wet year, and $52 million in a "food" year. Meteorological records indicate that over the last 100 years there have been 86 "dry years, 12 wet" years, and 2 lood" years. Assume the annual benefts, measured in real dollars, begin to accrue at the end of the frst year a Using the meteorological records as a basis for prediction, what are the present value expected net benetts of the dam if the real diucount rate is 5 percent b. is it officient to build the dam? Why or why not? e. is your conclusion sensitive to the assumed discount rate or is it robust? To answer tis question, use the federal government guidelnes which currerdy requires agmoes to do their caloulations using a 3% discount rate and also a 7% discount rate d. Another way to investigate this sensitivity is to cakoulate the break even vale for the discount rate. Calculate this value and agan decide if the concknion is robust regarding the discount rate
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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