i Briefly outline the model and principles you would use to conduct a cost-benefit analysis of a highway project which will reduce the travel time between two cities (include the appropriate diagram showing the demand for trips in your explanation).

ii Using the above framework, together with the following information and any reasonable assumptions you need to make about the values of variables and the timing of benefit flows, work out a rough estimate of the present value of the benefit to users of an extension to the Pacific Motorway:

Current usage rate: 85,000 trips per day Estimated future usage: 170,000 trips per day by 2020 Estimated time saved per trip at current usage rate: 10 minutes.

iii The capital cost of the project is reported to have a present value of $850 million.

Using this value, work out a rough estimate of the net present value of the project.

iv Briefly discuss the accuracy of your net present value estimate as a measure of the net efficiency benefit of the project, taking account of any significant omissions from your analysis.