Project 1.Marine Park Years 0 1 2 3 4 5 6 7 8 9 10 Costs (thousands of $) ?Const
ID: 1100849 • Letter: P
Question
Project 1.Marine Park
Years
0
1
2
3
4
5
6
7
8
9
10
Costs (thousands of $)
?Construction
1250
?Recurring costs
130
130
130
130
130
130
130
130
130
130
?Lost revenue to local fisherman
20
20
20
20
20
20
20
20
20
20
20
Benefits
?Increased tourist revenue
300
300
300
300
300
300
300
300
300
300
300
Project 2. Coral Mining
0
1
2
3
4
5
6
7
8
9
10
Costs (thousands of $)
?Extraction costs
3000
?Costs of coastal erosion
200
200
200
200
200
200
200
200
200
200
200
Benefits
?Revenues from limestone
4500
For this problem, use the attached spreadsheet above. Suppose there are two proposed uses for a coastal area. The coral reef area will either be protected and turned into a marine park or be mined. Both projects involve construction costs in year 0. The mining project will bring revenue only in year 0, while the park will brin tourist revine every year.
A set of costs and benefits is given for a 10-year period for each project. Use the spreadsheet to calculate the present value of the stream of net benefits for each project using a discount rate of 10%.
At the discount rate of 10%, the NPV for project 1 over 10 years is _____??????
For project 2, the NPV over 10 years is $______?
. This means that project (1 or 2)???
is preferred in terms of net benefits over time.
Project 1.Marine Park
Years
0
1
2
3
4
5
6
7
8
9
10
Costs (thousands of $)
?Construction
1250
?Recurring costs
130
130
130
130
130
130
130
130
130
130
?Lost revenue to local fisherman
20
20
20
20
20
20
20
20
20
20
20
Benefits
?Increased tourist revenue
300
300
300
300
300
300
300
300
300
300
300
Project 2. Coral Mining
0
1
2
3
4
5
6
7
8
9
10
Costs (thousands of $)
?Extraction costs
3000
?Costs of coastal erosion
200
200
200
200
200
200
200
200
200
200
200
Benefits
?Revenues from limestone
4500
Explanation / Answer
At discount rate = 5%
Project 1.Marine Park Years 0 1 2 3 4 5 6 7 8 9 10 Costs (thousands of $) Construction -1250 Recurring costs -130 -130 -130 -130 -130 -130 -130 -130 -130 -130 Lost revenue to local fisherman -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 -20 Benefits Increased tourist revenue 300 300 300 300 300 300 300 300 300 300 300 Net Annual cash flow -970 150 150 150 150 150 150 150 150 150 150 NPV (48.31) Project 2. Coral Mining 0 1 2 3 4 5 6 7 8 9 10 Costs (thousands of $) Extraction costs -3000 Costs of coastal erosion -200 -200 -200 -200 -200 -200 -200 -200 -200 -200 -200 Benefits Revenues from limestone 4500 Net Annual Cash flow 1300 -200 -200 -200 -200 -200 -200 -200 -200 -200 -200 NPV 71.09 At the discount rate of 10%, the NPV for project 1 over 10 years is -$48.31 For project 2, the NPV over 10 years is $71.09 . This means that project 2 is preferred in terms of net benefits over time.Related Questions
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