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Smoggyville is trying to decide what to do about the extreme pollution in its Rolling River. Suppose Smoggyville's leaders are considering two projects (1 and 2) for cleaning Rolling River. Both projects remove the required amount of pollutant from the river. But the two projects cause different costs and benefits over time, as given in the following table. Project 1 2 Year Costs 0 $5,000,000 1 $700,000 2 $700,000 0 $4,000,000 1 $750,000 2 $600,000 Benefits to Smoggyville residents $3,000,000 $3,000,000 $3,000,000 $2,800,000 $2,800,000 $2,800,000 Benefits to people downstream $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 a. Calculate the net present value (NPV) of project 1 using a discount rate of 3%. Show your work, and write your result in the blank provided. To receive marks, you must show work that leads to the answer you provide. Now suppose that the projects will impact three groups of Smoggyville's residents differently, according to the information in the following table. Income Project 1 Benefits generated Costs incurred Project 2 Benefits generated Costs incurred b. C. Group A $20,000 $5,000 $4,000 $8,500 $7,500 Group B $20,000 $10,000 $8,000 $7,500 $6,500 Is Project 1 horizontally equitable? (Use groups A and B to check.) Identify the vertical equity of Project 1. (Use groups B and C to check.) Group C $30,000 $15,000 $12,000 $10,000 $8,000 Smoggyville is trying to decide what to do about the extreme pollution in its Rolling River. Suppose Smoggyville's leaders are considering two projects (1 and 2) for cleaning Rolling River. Both projects remove the required amount of pollutant from the river. But the two projects cause different costs and benefits over time, as given in the following table. Project 1 2 Year Costs 0 $5,000,000 1 $700,000 2 $700,000 0 $4,000,000 1 $750,000 2 $600,000 Benefits to Smoggyville residents $3,000,000 $3,000,000 $3,000,000 $2,800,000 $2,800,000 $2,800,000 Benefits to people downstream $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 a. Calculate the net present value (NPV) of project 1 using a discount rate of 3%. Show your work, and write your result in the blank provided. To receive marks, you must show work that leads to the answer you provide. Now suppose that the projects will impact three groups of Smoggyville's residents differently, according to the information in the following table. Income Project 1 Benefits generated Costs incurred Project 2 Benefits generated Costs incurred b. C. Group A $20,000 $5,000 $4,000 $8,500 $7,500 Group B $20,000 $10,000 $8,000 $7,500 $6,500 Is Project 1 horizontally equitable? (Use groups A and B to check.) Identify the vertical equity of Project 1. (Use groups B and C to check.) Group C $30,000 $15,000 $12,000 $10,000 $8,000
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Step 12 Answer The NPV formula is as follows NPV The CF stands for the end periodic cash flows i sta... View the full answer
Related Book For
Managerial accounting
ISBN: 978-0471467854
1st edition
Authors: ramji balakrishnan, k. s i varamakrishnan, Geoffrey b. sprin
Posted Date:
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