Economics Assignment - Evaluation of Financial and Economic Considerations

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student:
Name of the University:
Authors Note:

ECONOMICS ASSIGNMENT
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Table of Contents
a) Evaluating the two options on the basis of financial and economic consideration:..............2
b) Recommending the option from the perspective of finance and depicting why:..................2
c) Recommending the option from the perspective of economy and depicting why:................3
d) Indicating whether changes in recommendation will occur if inflation is expected to be at
the level of 5%:..........................................................................................................................3
e) Indicating what is the basis for the analysis/comparison of cost/benefits-Real terms or
Nominal terms:...........................................................................................................................3
Annexure:...................................................................................................................................4

ECONOMICS ASSIGNMENT
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a) Evaluating the two options on the basis of financial and economic consideration:
Financial Economic
Proposal A Proposal B Proposal A Proposal B
NPV 0 Mn 0 Mn 1.85 2.55
IRR 0.597% 2.11% - -
PB 9.8 within 60 9.6 within
60
- -
B/C 1 1 1.26 1.36
Equivalent Annual
Cost
95 Mn 140 Mn 95 Mn 140 Mn
Consumer Surplus - - $ 0.05 Mn $ 0.05 Mn
Producer Surplus - - $ 1.8 Mn $ 2.5 Mn
Total Surplus - - $1.85 Mn $ 2.55 Mn
From the evaluation it could be detected that Proposal B is selected from the point of
view of financial perspective, as IRR and PB is higher for the project. Moreover, from the
perspective of economy proposal B only selected, as it delivers the highest NPV for the
company.
b) Recommending the option from the perspective of finance and depicting why:
Hence, from the perspective of finance option B is the most viable option, as it will
eventually increase return from the project, as both the internal rate of return PB of the
project is high. Moreover, Net present value of Project A is higher due its longevity, which is