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(a) As an economic advisor to the government, you analyse possible projects that maximise the utility and welfare of the country. You have been tasked
(a) As an economic advisor to the government, you analyse possible projects that maximise the utility and welfare of the country. You have been tasked with analysing replacement technology for Australia's east coast early tsunami warning system. The current system is outdated and lacks the range of detection of newer systems. The current system is also very expensive to maintain and operate. There are currently two designs on the market that offer a suitable replacement solution. To replace the current system it is anticipated that 1000 units of either of the Hello Tsunami (HT) or Big Wave Warning System (BWWS) be used to cover the same detection area as the existing system. A flat rate of 10% estimated as the risk in both of these projects. Provide detailed calculations indicating which system you would advise the government to purchase. (b) The following investment alternatives are available for simple projects: The required rate of return on these projects is 10% pa. i) Calculate the NPV for both projects. Based on your knowledge of finance, illustrate how the IRR and NPV do not always give identical conclusions of which projects should be chosen. What reasons may there be that this might this be the case? ii) Using only the payback period and discount payback methods identify which projects will be accepted if the payback period used by the company is less than 2 years, and the discounted payback period used by the company is less than 2.5 years? Present your calculations in a table format for each project, but include the calculation of the payback and discounted payback periods
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