The Bank of China is considering an application from the Government of the Republic of Zambia for a large dam project. Some costs and benefits of the project (in Kwacha values) are as follows:Construction costs: K500 million per year for three yearsOperating costs: K50 million per yearHydropower to be generated: 3 billion kilowatt hours per yearPrice of electricity: K0.05 per kilowatt hourIrrigation water available from dam: 5 billion liters per yearPrice of irrigation water: K0.02 per literAgricultural product lost from flooded lands: K45 million per yearForest products lost from flooded lands: K20 million per year Assume that the project incurs no ecological and other costs besides the ones stated above. Do a formal cost-benefit analysis encompassing all of the quantifiable factors listed above. Assume that the lifespan of the dam is 10 years and that construction begins in Year 0. All other impacts start once the dam is completed and continue for 10 years. Use 5% discount rates. What are your policy recommendations?

Net Present Value - The net present value demonstrates its utility in capital budgeting. It aids in…

Answered: The Bank of China is considering an…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10MC

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The Bank of China is considering an application from the Government of the Republic of Zambia for a large dam project. Some costs and benefits of the project (in Kwacha values) are as follows:

Construction costs: K500 million per year for three years
Operating costs: K50 million per year
Hydropower to be generated: 3 billion kilowatt hours per year
Price of electricity: K0.05 per kilowatt hour
Irrigation water available from dam: 5 billion liters per year
Price of irrigation water: K0.02 per liter
Agricultural product lost from flooded lands: K45 million per year
Forest products lost from flooded lands: K20 million per year

Assume that the project incurs no ecological and other costs besides the ones stated above. Do a formal cost-benefit analysis encompassing all of the quantifiable factors listed above. Assume that the lifespan of the dam is 10 years and that construction begins in Year 0. All other impacts start once the dam is completed and continue for 10 years. Use 5% discount rates. What are your policy recommendations?

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