Reference no: EM132032242

The U.S. Bureau of Reclamation is considering an application for a new dam project. Costs and benefits of the project (in dollar values) are as follows: Construction costs: $500/million per year for 3 years Operating costs: $50 million /year Hydropower to be generated: 3 billion Kilowatt hours/year Price of electricity: $0.05/Kilowatt hour Irrigation water available from dam: 5 billion gallons/year Price of water: $0.02/gallon Agricultural product lost from flooded lands: $45 million/year Forest products lost from flooded lands: $20 million/year There are additional benefits that are difficult to quantify, including the following: human costs to villagers who will be forced to move; watershed damage, and ecological costs of habitat destruction. It is also possible that the new lake area may contribute to the spread of waterborne diseases. Assume construction of the dam begins in year 0. All other impacts occur begin after construction is finished (3 years later, so beginning in year 3). Assume that the discount rate is 5%. We are assuming the lifetime of the project is 10 years (though in reality, this type project would have a lifetime of 30+ years) *Note: You could use excel to quickly compute the discounted values and extend the analysis to 30 years 1) Which of the impacts listed above fill into the category of benefits? Which are costs? 2) Using the costs and benefits above that are quantifiable, fill in the cost-benefit analysis table below. Then answer the following questions: a) What is the cost benefit ratio? Find the ratio of total (discounted) benefits to total(discounted) costs. b) How would a different discount rate affect the benefit cost ratio? Explain your answer. c) How would inclusion of the non-quantifiable benefits impact the cost benefit ratio? d) What economic methods could be used to quantify the non-market benefits listed above? Be specific.