5. 12 marks] A CBA analyst summarized the efficiency net benefits from a farming

Question

5. 12 marks] A CBA analyst summarized the efficiency net benefits from a farming project at 10% discount. The analyst is informed that the investor, the Federal Government and the foreign bank are not part of the Referent Group. Investor, S1million (mn) net benefits; * Federal government, $4mn net benefits; .State government, $2mn net costs; .To otherwise local unemployed labour, $3mn net benefits; To local banks, $1mn net benefits; To foreign banks, $2mn net benefits; * To the community at large, $5mn net costs from non-market values Calculate the referent group and non-referent group net benefits based on this information provided above.

Explanation / Answer

Referent group consists of State government, other local unemployed labour, local banks and the community at large. Total net benefits of the referent group = -$2mn + $3mn + $1mn -$5mn = - $3mn

Discounted net benefits to the referent group = -$3mn/(1+0.1) = -$2.73mn

Thus, there is a net loss of $2.73mn to the referent group.

The non-referent group consists of the investor, the Federal government and the foreign banks. Total net benefits to the non-referent group = $1mn + $4mn + $2mn = $7mn

Discounted net benefits to the referent group = $7mn/(1+0.1) = $6.36mn

Thus, there is a net benefit of $6.36mn to the non-referent group.

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