Economic Evaluation Of Answers

Added on - 06 Jan 2020

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49003-Assign2a2017-answertemplatePage1of449003ECONOMICEVALUATIONANSWER-SHEET
49003-Assign2a2017-answertemplatePage2of4Pleasesummarizeyourresults in thetablebelow:(5Marks)FinancialEconomicProposal AProposal BProposal AProposal BNPV-3.6613 billionIRR10%27%PB60 Years1 yearB/C-19.30675LifeCycleCost40 billion40 billionEquivalentAnnual Cost3 billion3 billionConsumerSurplus1.48 billion2.22 billionProducerSurplus2.29 billion3.43 billionTotalSurplus3.77 billion5.65DeadweightLossNotes:1.NPV;EquivalentAnnualCost;LifeCycleCost;andSurpluses(Consumer, Producer,and Total)and Deadweight Loss -must berounded offto thenearest billiondollars(i.e.,no decimals), and IRRandPB-to thenearestwholepercents andyears(i.e.,nodecimals), andB/C-to onedecimal point only.2.All boxes inthetablemust befilled(ifa particular indicator isnot relevant,youmaywriteNotApplicableinthebox).
1.What is thebasisofyourcalculations(theresults ofwhicharepresented intheabovetable)Nominalterms orRealterms?(2Marks)Nominal pricesReal pricesWhy?Real value is taken in to account because inflation rate is taken in to account fordiscounting cash flows.(nomorethan10words)2.Which proposal willyourecommendfrom theinvestor’sperspective?(2Marks)ABEitherNeitherWhy?Because Proposal B because its NPV and IRR are higher than project A and due to thisreason it is considered economic viable.(nomorethan10words)3.Which proposal willyourecommendfrom theproducer’sperspective?(2Marks)
ABEitherNeitherWhy?Because From the producer perspective project B is selected because it have high valueof surplus amount in comparison to project A.(nomorethan10words)4.Willyourrecommendation, based onfinancialperspective,changeifthereis no inflation ordeflation throughout theusefuleconomiclives ofthetwo projects?(2Marks)YesNoWhy?Because No, because in the project A already cost is much higher than cash inflows.Thus, even adjustment will not be done then also project B will be proved viable.(nomorethan10words)
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