The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately)....

The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately). The impact on cottage owners will involve a loss of $50,000 at the end of each year for the first four years (because of the construction activities affecting property values) but cottage owners will benefit by $55,000 per year in perpetuity from the end of year 5 onwards. The benefits from recreational fishing will not start until the end of year 5 and will be $35,000 per year in perpetuity. Development, stocking and management costs of the recreational fishery will start at the beginning of year 3 and continue forever. These costs are $10,000 per year

The province is considering a water resource development that will enhance recreational fishing and recreational cottage values (property values).
1. a) Calculate the net present value using a 5% discount rate. Interpret the result. (15 points)
2. b) Calculate the gross benefit cost ratio using a discount rate of 5%. Interpret the result. (5 points)
3. c) Which value best approximates the internal rate of return: 4 %, 5%, 6%, 7%, 8%, or 9%? (Note – you are not being asked to calculate the internal rate of return!) (5 points)

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jeff jeffy answered 1 year ago

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The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately)....

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