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

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