2. Suppose you are evaluating a proposal to build a dam The dam will generate electricity, contribute to flood control and also the reservoir will provide recreational benefits. The dam can be built in one year and start operations right after. The dam will have a useful life of 40 years after which its reservoir will be full of sediment and will need to be removed. The removal costs are $2,000,000. You are given the following information on the project: Initial cost: $150 million Annual Operating costs: $9 million Annual benefits of electricity generated- $15 million Annual Recreational Benefits- $5 million Annual flood control depends on the expected precipitation patterns. In normal years, there is no risk of flood and normal years occur 70% of time. In a high precipitation year, which is expected to happen every 5 years (probability of 0.2), the dam is expected to prevent crop damage worth $10 million and in a very-high precipitation year, which is expected to happen once every 10 years, the damage prevented is $40 million The govemment guidelines is to use a discount rate of 6% for projects of this time horizon. There are also unquantified damages, such as watershed damage and costs to villagers who will be forced to move out. Formula(s) you might need for the analysis are: PV = (1 - atris) for X starting in year 1 PV = x (177241- (1+733+) (1+r)1+r) for X starting in year 0 a. b. (1 mark) How would you have estimated the value of electricity generated? (1 mark) Given the dam has not been built yet at the time of your study, how would you obtain an estimate of recreational benefits? (8 marks) Evaluate the project using the quantifiable factors. Please show your work and how you used the formula(s). What is your recommendation? Also mention the factors your analysis may have omitted (if any). c