class assignment due in class

class assignment due in class - replace traditional tokens....

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EXERCISES FOR FEBRUARY, 4th 1. Consider a proposed project to improve municipal sewage treatment. Three different levels of treatment are possible, each with a different stream of benefits and costs: • Enhanced tertiary treatment • Tertiary treatment • Secondary treatment Costs and Benefits are as follows: Costs (million $) Project Year 0 1 2 3 Enhanced tertiary treatment 10 4 3 3 Tertiary treatment 5 3 2 2 Secondary treatment 2 2 1 1 Benefits (million $) Project Year 0 1 2 3 Enhanced tertiary treatment 0 7 9 10 Tertiary treatment 0 5 6 6 Secondary treatment 0 3 3 3 a. Which treatment to implement? (use NPV criterion and consider a discount rate of 5%). b. Rank these projects according to the benefit-cost ratio (use a discount rate of 5%) 2. A municipal subway system is contemplating the purchase of an electronic fare system to
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Unformatted text preview: replace traditional tokens. Each installation is expected to cost $50,000 and save $8000 per year in labour costs over the ten-year lifespan of the equipment. An annual maintenance expense of $500 will be required. The subway system uses a 7 percent discount rate. a. Should the system buy the electronic equipment? (use the NPV criterion). b. What is the discounted payback period? 3. Consider the following cash flows: Year 1 2 3 4 5 Costs $10,000 $5000 $2000 Benefits $2000 $4000 $6000 $8000 $10000 Using a discount rate of 8 percent: Find the NPV of the project. Is the project desirable? Estimate the Benefit/Cost Ratio Estimate the Payback Period If the discount rate is 12%, is the project desirable?...
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This note was uploaded on 05/27/2010 for the course ECON ECON 3509 taught by Professor Pablo during the Winter '09 term at Carleton CA.

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class assignment due in class - replace traditional tokens....

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