Reference no: EM132434466
49003 Economic Evaluation Assignment, University of Technology Sydney, Australia
Please summarize your results in the table below:
|
Financial
|
Economic
|
|
Proposal A
|
Proposal B
|
Proposal A
|
Proposal B
|
|
NPV
|
= 0 (at real discount rate)
|
= 0 (at real discount rate)
|
N.A.
|
N.A.
|
|
IRR
|
10% (same as real discount rate)
|
10% (same as real discount rate)
|
N.A.
|
N.A.
|
|
PB
|
10 years
|
10 years
|
N.A.
|
N.A.
|
|
B/C
|
PV of return / initial investment
=0.9973
=1
|
PV of return / initial investment
=0.9978
=1
|
N.A.
|
N.A.
|
|
Life Cycle Cost
|
$ 100 bn.
|
$ 160 bn.
|
$ 84 bn.
|
$ 144 bn.
|
|
Equivalent Annual Cost
|
$ 5 bn.
|
$ 6 bn.
|
$ 1 bn.
|
$ 2 bn.
|
|
Consumer Surplus
|
N.A.
|
N.A.
|
$ 8 bn.
|
$ 8 bn.
|
|
Producer Surplus
|
N.A.
|
N.A.
|
$ 10 bn.
|
$ 15 bn.
|
|
Total Surplus
|
N.A.
|
N.A.
|
$ 18 bn.
|
$ 23 bn.
|
|
Deadweight Loss
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
Note: NPV; Equivalent Annual Cost; Life Cycle Cost; and Surpluses (Consumer, Producer, and Total)and Deadweight Loss - must be rounded off to the nearest billion dollars (i.e., no decimals), and IRR and PB - to the nearest 'whole' percents and years (i.e., no decimals), and B/C - to one decimal point only.
Q1. Which proposal will you recommend from investor's perspective?
A
B
Either
Neither
Q2. From a financial perspective, will you select any of these projects on the basis of the indicator of Consumer Surplus?
Yes
No
Q3. Will your recommendation, based on economic perspective, change if the opportunity cost of money is zero?
Yes
No
Q4. In Figure 2, will the response of demand to changes in prices in the range of 9 to 12 cents per unit be:
Elastic
Inelastic
Q5. Will your recommendation, based on economic perspective, change if - due to unanticipated global financial turmoil - there is hyperinflation after the first ten years of the projects' life spans?
Yes
No
Q6. Will your recommendations, based on economic perspective, change if the government succeeds in converting the monopoly market, into an oligopoly market, but is unable to transform oligopoly market into a competitive market (i.e., the market stays as an oligopoly for the last 40 years of project life-spans)?
Yes
No
Q7. How much subsidy (expressed in present value terms) will the government need to provide for Proposal B in order to encourage the producer to sell electricity at the competitive market prices throughout the 60 year project duration?