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The Johor Resources Development Department has proposed building a dam and a hydroelectric project that will remedy a flood situation on a mountain river, generate
The Johor Resources Development Department has proposed building a dam and a hydroelectric project that will remedy a flood situation on a mountain river, generate power, provide water for irrigation and domestic use, and provide certain recreational facilities for boating and fishing. The construction cost would be as follows: Dam RM 40,000,000 Access roads RM 2,000,000 Power plant RM 4,000,000 Transmission lines RM 1,500,000 Irrigation and water canals RM 3,000,000 In addition, it is estimated that the annual operation and maintenance costs will be RM2,000,000. The dam and power station are expected to last 40 years. The interest rate is 8% per year. Estimates of the annual benefits and revenues are as follows: Flood control RM 900,000 Sale of power RM 2,700,000 Sale of water RM 1,600,000 Recreation benefits RM 1,800,000 Income from sports concessions RM 200,000 (a) Determine whether the project is justified based on the Benefit Cost ratio analysis. (10 Marks) (b) Once the project was publicized, the villagers lodged a complaint that the project will alter the natural environment and affect existing users of natural resources, including wild capture fisheries. Lost income to villagers is estimated to be RM150,000 per year. The Johor financial manager stated that these concerns would be entered into the evaluation. Redo the B/C analysis to determine if the economic decision is still the same. (10 Marks) The Johor Resources Development Department has proposed building a dam and a hydroelectric project that will remedy a flood situation on a mountain river, generate power, provide water for irrigation and domestic use, and provide certain recreational facilities for boating and fishing. The construction cost would be as follows: Dam RM 40,000,000 Access roads RM 2,000,000 Power plant RM 4,000,000 Transmission lines RM 1,500,000 Irrigation and water canals RM 3,000,000 In addition, it is estimated that the annual operation and maintenance costs will be RM2,000,000. The dam and power station are expected to last 40 years. The interest rate is 8% per year. Estimates of the annual benefits and revenues are as follows: Flood control RM 900,000 Sale of power RM 2,700,000 Sale of water RM 1,600,000 Recreation benefits RM 1,800,000 Income from sports concessions RM 200,000 (a) Determine whether the project is justified based on the Benefit Cost ratio analysis. (10 Marks) (b) Once the project was publicized, the villagers lodged a complaint that the project will alter the natural environment and affect existing users of natural resources, including wild capture fisheries. Lost income to villagers is estimated to be RM150,000 per year. The Johor financial manager stated that these concerns would be entered into the evaluation. Redo the B/C analysis to determine if the economic decision is still the same. (10 Marks)
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