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2. Suppose that the county government of Pinellas County is considering implementing a 10-mile coastal nature reserve. Suppose that the county government considers the
2. Suppose that the county government of Pinellas County is considering implementing a 10-mile coastal nature reserve. Suppose that the county government considers the program over a 4-year time span. Suppose further that a study has determined that the benefits of creating this nature reserve are due to increased eco-tourism. Suppose that the same study determines that the upfront costs of this reserve are $250,000 (must be paid immediately) and that annual costs are $40,000 each subsequent year (enforcement costs and lost revenues for businesses). At the date of implementation, the costs are $250,000 and in each subsequent year (1 through 4) costs are $40,000 per year. Time Date of implementation End of Year 1 End of Year 2 End of Year 3 End of Year 4 Benefits $0 200,000 100,000 100,000 100,000 Costs $250,000 40,000 40,000 40,000 40,000 End of Year 1 means one year from now (n = 1); End of Year 2 means two years from now (n=2), End of Year 3 means three years from now (n = 3), etc. a. Using a discount rate of 3%, find the Present Value of the expected benefits. Show your work. Hint: Using Excel might be a good idea if you don't want to do the math by hand (simply copy your Excel table into your word document and that counts as showing your work). b. Using a discount rate of 3%, find the Present Value of the expected costs. Show your work. Hint: Using Excel might be a good idea if you don't want to do the math by hand (simply copy your Excel table into your word document and that counts as showing your work). c. Over the 4-year time span on the project, what is the calculated NB of this coastal nature reserve? Show your work. d. What is the Benefit-Cost ratio? Show your work e. What would you recommend regarding this proposed coastal nature reserve? Why?
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