Part 2 (5 points)

Quail numbers in Oklahoma have been decreasing statewide based on the 2019 survey. Explain why a project for quail restoration in Oklahoma might be more sensitive to a higher discount rate than a public housing project? What is a social discount rate? Why would we use a social discount rate in this circumstance? What happens when the social discount rate is too high or too low?

Part I (15 points) The Island of Kalonia has a budgetary surplus of $150 million. Several proposals have been examined for using the money. Two project proposals emerged as candidates for serious consideration. One of the projects (Project A) uses the entire surplus for countrywide road repairs. This project has an expected life of 10 years. The other project (Project B) proposes to invest the entire $150 million in a long neglected hazardous waste cleanup with a project life of 20 years. The project's annual benefits and maintenance costs are summarized in Table 1. (Note: $150 million is the initial investment that will be spent in year 0). Table 1. Benefit and Cost for both Projects. Project B: Cleanup Hazardous Waste Year Benefit Cleanup cost ($ million) ($million) cost Project A: Road Repair Year Benefit Construction Maintenance ($ million) cost ($million) ($ million) 0 0 150 1-5 60 0 2 6-8 20 0 5 9-10 15 0 10 Maintenance cost ($ million) 0 1-5 6-10 11-20 10 150 0 0 25 25 25 10 0 0 (a) For each project, set up the annual benefit and cost tables in an Excel spreadsheet. (b) Calculate the Present Value of Benefit (PVB) and Present Value of Costs (PVC) for each project at discount rates of 5% and 18%. (c) Use the PVB and PVC obtained from (b) to calculate the Net Present Value (NPV) and Benefit Cost Ratios (BCR) of each project. (d) Which project is preferred based on your analysis and at what discount rate? Explain the reasons supporting your decision. (hint: use results from c.) (e) What would happen to your decision if the discount rate was changed to 0% on project B. Explain why and draw a conclusion. Part I (15 points) The Island of Kalonia has a budgetary surplus of $150 million. Several proposals have been examined for using the money. Two project proposals emerged as candidates for serious consideration. One of the projects (Project A) uses the entire surplus for countrywide road repairs. This project has an expected life of 10 years. The other project (Project B) proposes to invest the entire $150 million in a long neglected hazardous waste cleanup with a project life of 20 years. The project's annual benefits and maintenance costs are summarized in Table 1. (Note: $150 million is the initial investment that will be spent in year 0). Table 1. Benefit and Cost for both Projects. Project B: Cleanup Hazardous Waste Year Benefit Cleanup cost ($ million) ($million) cost Project A: Road Repair Year Benefit Construction Maintenance ($ million) cost ($million) ($ million) 0 0 150 1-5 60 0 2 6-8 20 0 5 9-10 15 0 10 Maintenance cost ($ million) 0 1-5 6-10 11-20 10 150 0 0 25 25 25 10 0 0 (a) For each project, set up the annual benefit and cost tables in an Excel spreadsheet. (b) Calculate the Present Value of Benefit (PVB) and Present Value of Costs (PVC) for each project at discount rates of 5% and 18%. (c) Use the PVB and PVC obtained from (b) to calculate the Net Present Value (NPV) and Benefit Cost Ratios (BCR) of each project. (d) Which project is preferred based on your analysis and at what discount rate? Explain the reasons supporting your decision. (hint: use results from c.) (e) What would happen to your decision if the discount rate was changed to 0% on project B. Explain why and draw a conclusion