Reference no: EM13186696
A national park in California contains the tallest known redwood tree, as well as remnants of the coastal redwood ecotype that once dominated coastal California. The park does not receive many visitors; it has been estimated that no more than 5,000 vistors go each year, each spending an average of three days, for a total of 15,000 recreation visitor-days (RVDs) per year. When the federal government acquired the park from private timber companies that intended to manage it for redwood lumber, the cost was approximately $600 million. That $600 million can be viewed as the present value of an annual stream of future costs.
a. What is the annual cost of the national park if the interest rate is 10%?
b. What is the opportunity cost of the establishment of the park in terms of use of the land?
c. What would the benefits per RVD have to be if recreational use were the only justification for the park, and if the net present value of the park were to be non-negative? If recreation were the only justification for the park, do you think that purchasing the park was efficient?
d. What other justifications might exist for establishing the national park?
e. There are approximately 100 million households in the U.S. How high would average household willingness to pay for the national park have to be to justify it?
f. If the discount rate were 5%, not 10%, would the park be easier or more difficult to justify.
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