A public decision-maker has a budget of $100 which must be spent in the current year.

Three projects are proposed, each of which is indivisible (it is not possible to undertake less than the whole project) and non-reproducible (it is not possible to construct two versions of the same project). The discount rate is 10% per annum. The project benefits and costs are summarised in the following:

Project cost ($) Benefits ($)

Year 0 Year 1 Year 2 A 30 40 0 B 30 0 50 C 70 0 100 i Work out the Net Present Value (NPV), Internal Rate of Return (IRR) and Benefit/Cost Ratio (B/C) for each project.

ii Rank the projects according to the NPV, IRR and B/C investment criteria.

iii Assuming that project returns can be reinvested, which projects should be undertaken to spend the budget:

a if the reinvestment rate is 22% per annum?

b if the reinvestment rate is 28% per annum?