The government of Equatoria is considering a dam project. The government has estimated the costs and benefits
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Question:
The government of Equatoria is considering a dam project. The government has estimated the costs and benefits of the project as follows:
| Project 1 | Project 2 | Project 3 | |
| Initial construction cost | $15,000,000 | $30,000,000 | $15,000,000 |
| Year 1 cash inflow | $12,000,000 | $12,000,000 | $9,100,000 |
| Year 2 cash inflow | $6,000,000 | $10,000,000 | $9,100,000 |
| Year 3 cash inflow | $5,000,000 | $24,000,000 | $9,100,000 |
- Suppose the discount rate is 15%, what are the costs and benefits associated with each project? Which project will yield the most benefit?
- Lets assume that the country of Equatoria is prone to earthquakes. A major earthquake is expected to lead to dam failure causing material damage and loss in human lives, but the probability is only 0.01% per year. What will be your policy recommendation in this situation?
Expert Answer:
To analyze the costs and benefits associated with each project and determine the project that yields the most benefit we need to calculate the net pre... View the full answer
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