Briefly explain if either project is justifiable

Reference no: EM133287378

Question: The Kingdom of Hapolonia is considering investing in one of two environmental projects. All benefits and costs associated with each project include all market and non-market activities to all Hapolonians. Project A involves spending $30 billion today with benefits of $20 billion one year from now, $10 billion two years from now and $10 billion three years from now. Project B involves spending $10 billion today, $10 billion one year from now and $10 billion two years from now with benefits of $10 billion one year from now, $10 billion two years from now and $20 billion dollars three years from now. Hapolonians are rather impatient, so an appropriate rate of time preference is five percent. The Hapolonian economy is a powerhouse and grows consistently at four percent per year. Like most countries, Hapolonians have an elasticity of the marginal utility of consumption of two percent.

The net present value of project A is 7.17 billion and the net present value of project B is 7.24 billion.

Using a dynamically efficient approach, briefly explain if either project is justifiable. (It would be appropriate to define what dynamic efficiency means when trying to explain which project(s) is (are) justifiable.).

Reference no: EM133287378

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