For each, submit the data summary indicated at the beginning of the next page al
ID: 1169211 • Letter: F
Question
For each, submit the data summary indicated at the beginning of the next page along with your final answer.
The World Bank is considering an application from the country of Equatoria for a large dam project. Some costs and benefits of the project (dollar values) are as follows:
Construction costs: $500 million/year for three years
Operating costs: $50 million/year
Hydropower to be generated: 3 billion Kilowatt hours/year
Price of electricity: $0.05/Kilowatt hour
Irrigation water available from the dam: 5 billion gallons/year
Price of water: $0.02/gallon
Agricultural product lost from flooded lands: $45 million/year
Forest products lost from flooded lands: $20 million/year
There are also additional, less easily quantifiable, losses: human costs to villagers who will be forced to move, watershed damage, and ecological costs of habitat destruction. It is also possible that the new lake are may contribute to the spread of water-borne diseases.
Do a formal cost-benefit analysis using the quantifiable factors listed. Assume that the lifespan of the dam is 30 years; assume that construction begin now (in Year 0). All other impacts start once the dam is completed (in Year 3) and continue for 30 years (until Year 32).
Scenarios to analyze
1. Do a complete cost-benefit analysis if the interest rate is 10%.
2. Do a complete cost-benefit analysis if the interest rate is 5%.
Complete the data summary (for each scenario analyzed):
Costs PV Benefits PV Construction $? Hydro Power $? Operation $? Irrigation Water $? Flooded Ag $? Total PV of Benefits $? Flooded Forests $? Total PV of Costs $? Net Benefits (NPV) NB=PVB - PVC ? Discount Rate ?% n ? useful life time of the dam (after construction) Current Value CV(annual) Costs Construction $? Operation $? Flooded Ag $? Flooded Forests $? Benefits Hydro Power $? Irrigation Water $?Explanation / Answer
Cost- Benefit analysis for 10% Interest
Costs
PV
Benefits
PV
Construction
49.50 Billion
Hydro Power
4.95 Billion
Operation
1.65 Billion
Irrigation Water
3.30 Billion
Flooded Ag
1.49 Billion
Total PV of Benefits
8.25 Billion
Flooded Forests
660 Million
Total PV of Costs
53.30 Billion
Net Benefits (NPV)
NB=PVB - PVC
-45.05 Billion
Discount Rate
10%
n
30
useful life time of the dam (after construction)
Current Value
CV(annual)
Costs
Construction
1.50 Billion
Operation
50 Million
Flooded Ag
45 Million
Flooded Forests
20 Million
Benefits
Hydro Power
150 Million
Irrigation Water
100 Million
Cost- Benefit analysis for 5% Interest
Costs
PV
Benefits
PV
Construction
47.25 Billion
Hydro Power
4.73 Billion
Operation
1.58 Billion
Irrigation Water
3.15 Billion
Flooded Ag
1.42 Billion
Total PV of Benefits
7.88 Billion
Flooded Forests
630 Million
Total PV of Costs
50.87 Billion
Net Benefits (NPV)
NB=PVB - PVC
-43 Billion
Discount Rate
5%
n
30
useful life time of the dam (after construction)
Current Value
CV(annual)
Costs
Construction
1.50 Billion
Operation
50 Million
Flooded Ag
45 Million
Flooded Forests
20 Million
Benefits
Hydro Power
150 Million
Irrigation Water
100 Million
Cost- Benefit analysis for 10% Interest
Costs
PV
Benefits
PV
Construction
49.50 Billion
Hydro Power
4.95 Billion
Operation
1.65 Billion
Irrigation Water
3.30 Billion
Flooded Ag
1.49 Billion
Total PV of Benefits
8.25 Billion
Flooded Forests
660 Million
Total PV of Costs
53.30 Billion
Net Benefits (NPV)
NB=PVB - PVC
-45.05 Billion
Discount Rate
10%
n
30
useful life time of the dam (after construction)
Current Value
CV(annual)
Costs
Construction
1.50 Billion
Operation
50 Million
Flooded Ag
45 Million
Flooded Forests
20 Million
Benefits
Hydro Power
150 Million
Irrigation Water
100 Million
Cost- Benefit analysis for 5% Interest
Costs
PV
Benefits
PV
Construction
47.25 Billion
Hydro Power
4.73 Billion
Operation
1.58 Billion
Irrigation Water
3.15 Billion
Flooded Ag
1.42 Billion
Total PV of Benefits
7.88 Billion
Flooded Forests
630 Million
Total PV of Costs
50.87 Billion
Net Benefits (NPV)
NB=PVB - PVC
-43 Billion
Discount Rate
5%
n
30
useful life time of the dam (after construction)
Current Value
CV(annual)
Costs
Construction
1.50 Billion
Operation
50 Million
Flooded Ag
45 Million
Flooded Forests
20 Million
Benefits
Hydro Power
150 Million
Irrigation Water
100 Million
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