A wildlife conservacy group is considering purchasing land to set aside for sage

Question

A wildlife conservacy group is considering purchasing land to set aside for sage grouse habitat. The cost of this land is $3 million upfront and an additional $0.5 million a year for five years (starting one year from now). A survey conducted by experts suggest that the total willingness to pay of Americans to save the endangered sage grouse is $5 million. Using this number as the benefit, what is the benefit cost ratio of the proposed project, assuming a discount rate of 3%? Would you reccomend the project?

Explanation / Answer

Total Value of Investment = 3 million + Present value of o.5 million for 5 years at the rate of 3%

Present value of o.5 million for 5 years at the rate of 3% is as follows :

TOTAL = 3+2.289 = 5.29 million

Since  total willingness to pay of Americans to save the endangered sage grouse is $5 million and the current estimation is 5.29 million which is more , so i wont recommend the project.

Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 0.5 0.5 0.5 0.5 0.5 Disc Rate 0.970874 0.942596 0.915142 0.888487 0.862609 Value 0.485437 0.471298 0.457571 0.444244 0.431304 TOTAL 2.289854

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