(TCO 6 Restong wet andst day may convey benents so fa wetlands today may convey

Question

(TCO 6 Restong wet andst day may convey benents so fa wetlands today may convey benefits 50 years from today estimated at $50,000 (fishing, oyster autivation, and habitat preservation Calculate the present value of this project using a dscurt factor of 3% and assume Next, calculate the present value the cost of preserving the wetlands is $10,000 i enefit-cost ratio. iscuss the importance of choosing the social discount rate and how society may be inappropriately rof 3% and assume that rflation is 2% thus a nominals aal discount rate of5%). that nation is 2% thus a using the same inflation rate (2%), but a discount factor of 1% (thus a nomeal seal ascora d of 1% (thus a nomealscul dscourt rate of 3%). Show you in the present, would the project be feasible? Use the present value of net benefits to support your de r evaluating the benefts of environmental projects. (P Spelichecker 3. (TCO 7) Does the Clean Air Act Amendment of 1990 achieve its goal? Briefly discuss with reference to the strengths and weaknesses of each approach, (Points : 40) Briefly discuss with reference to the EPA cost-benefe analysis, as well as the economc a

Explanation / Answer

Details Amt $/%          1 When nominal Social Discount rate is = 5% Discount factor for 50 years=1/1.05^50=                0.0872 Social benefit receivable after 50 years                50,000 PV of Social benefit=50000*0.0872=                  4,360 Present Cost of preserving the wetland=                10,000 Present value of net benefits== $      (5,639.81)          2 When nominal Social Discount rate is = 3% Discount factor for 50 years=1/1.03^50=                0.2281 Social benefit receivable after 50 years                50,000 PV of Social benefit=50000*0.2281=                11,405 Present Cost of preserving the wetland=                10,000 Present value of net benefits== $        1,405.35 So the project is feasible only when the   nominal SDR is 3% , not feasible at nominal   SDR rate 5% Chhsoing the correct SDR is very important   in social /environmental benefit analysis. If too high SDR rate is chosen , genuinely   beneficial projects will be rejected due to negative net benefit and if too low   SDR is chosen , environmental projects without any substantial benefits   will get clearance and future generation will suffer for the selection.

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