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Economic Evaluation Of Answers

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Added on  2020-01-07

Economic Evaluation Of Answers

   Added on 2020-01-07

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49003-Assign2a2017-answertemplatePage1 of449003ECONOMICEVALUATIONANSWER-SHEET
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49003-Assign2a2017-answertemplatePage2 of4Pleasesummarizeyourresults in thetablebelow: (5 Marks)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 billionTotal Surplus3.77 billion5.65DeadweightLossNotes:1. NPV;Equivalent Annual Cost;LifeCycleCost;and Surpluses (Consumer, Producer, and Total)and Deadweight Loss -must berounded offto thenearest billiondollars (i.e., no decimals), and IRRandPB-to thenearest ‘whole’percents and years (i.e., no decimals), and B/C-to onedecimal point only.2. All boxes inthetablemust be filled (ifa particular indicator is not relevant, youmaywrite‘Not Applicable’inthebox).
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1. What is thebasis ofyourcalculations (theresults ofwhich arepresented inthe abovetable)–Nominal terms orReal terms?(2 Marks)Nominal prices Real pricesWhy? Real value is taken in to account because inflation rate is taken in to account for discounting cash flows.(no morethan10 words)2. Which proposal willyourecommend from theinvestor’s perspective?(2Marks)A B Either NeitherWhy? Because Proposal B because its NPV and IRR are higher than project A and due to this reason it is considered economic viable. (no morethan10 words)3. Which proposal willyourecommend from theproducer’s perspective?(2 Marks)
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A B Either NeitherWhy? Because From the producer perspective project B is selected because it have high valueof surplus amount in comparison to project A.(no morethan10 words)4. Willyourrecommendation, based on financial perspective, changeifthereis no inflation ordeflation throughout theuseful economiclives ofthetwo projects?(2 Marks)Yes NoWhy? 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.(no morethan10 words)
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