IBUS, MGMT

IBUS4055Week7TermProjectDoonseyDamCBAWorksheet.xlsx

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Instructions

The city of Doonsey is planning a large dam project. As part of its financing, the city has submitted an application to the World Bank. You have been asked to make recommendations to the World Bank whether or not this project is worth funding. Some costs and benefits of the project (dollar values) are as follows:
Some costs and benefits of the project (dollar values) are as follows:
Construction costs:	$600	million per year for three years
Operating costs:	$50	million per year
Hydropower to be generated:	4	billion kilowatt hours per year
Price of electricity:	$0.05	per kilowatt hour
Irrigation water available from dam:	5	billion gallons per year
Price of irrigation water:	$0.02	per gallon
Agricultural product lost from flooded lands:	$60	million per year
Forest products lost from flooded lands:	$20	million per year
INSTRUCTIONS
SCENARIO A
Do a formal cost-benefit analysis encompassing all of the quantifiable factors listed above. Assume that the lifespan of the dam is 30 years. As in the example in Table 7.5, assume that construction begins now (in Year 0). All other impacts start once the dam is completed (in Year 3) and continue for 30 years (until Year 32). Refer to Appendix 7.1 to make the necessary calculations using Excel. Use two possible discount rates: 8 percent and 5 percent. For each rate, what is the present value of the dam’s benefits and costs? What are your policy recommendations for each discount rate? Remember that there are also unquantified impacts.
SCENARIO B
Now consider an alternative project: a number of smaller dams constructed so as not to flood significant agricultural or forest lands. For this project, total construction costs are exactly half the costs of the big dam project (but still over a three-year period), operating costs are unchanged, and power/irrigation benefits are also half as much. But there is no damage to farmland or forest, and there are no ecological or resettlement costs. Conduct a cost-benefit analysis of this project, again using a 5 percent and an 8 percent discount rate. What is the present value of this scenario’s costs and benefits at each discount rate?
CONCLUSION & RECOMMENDATIONS
Considering all your results, what are your policy recommendations? Do you prefer building the one large dam or the several smaller dams? Finally, which discount rate, 5 percent or 10 percent, do you think is most appropriate for your cost-benefit analysis? Why?

IBUS3055 Lindblom &A Winter 2018-2019

Scenario A - 5 percent

5%	COSTS (all values in millions)				BENEFITS (all values in millions)
YEAR	Dam Construction	Operations	Lost Agricultural Value	Lost Forest Value	Hydropower	Irrigation
	$600	$0	$0	$0	$0	$0
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Total Present Value
Sum of Costs	$ - 0				Sum of Benefits	$ - 0
Net Benefits:	$ - 0
STUDENT NAME:

&F &A

IBUS3055 Lindblom Winter 2018-2019

Scenario A - 8 percent

8%	COSTS (all values in millions)				BENEFITS (all values in millions)
YEAR	Dam Construction	Operations	Lost Agricultural Value	Lost Forest Value	Hydropower	Irrigation
	$0	$0	$0	$0	$0	$0
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Total Present Value
Sum of Costs	$ - 0				Sum of Benefits	$ - 0
Net Benefits:	$ - 0
STUDENT NAME:

&F &A

IBUS3055 Lindblom Winter 2018-2019

Scenario B - 5 percent

5%	COSTS (all values in millions)		BENEFITS (all values in millions)
YEAR	Dam Construction	Operations	Hydropower	Irrigation
	$0	$0	$0	$0
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Total Present Value	$ - 0	$ - 0	$ - 0	$ - 0
Sum of Costs:	$ - 0		Sum of Benefits:	$ - 0
Net Benefits:	$ - 0
STUDENT NAME:

&F &A

IBUS3055 Lindblom Winter 2018-2019

Scenario B - 8 percent

8%	COSTS (all values in millions)		BENEFITS (all values in millions)
YEAR	Dam Construction	Operations	Hydropower	Irrigation
	$0	$0	$0	$0
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
Total Present Value	$ - 0	$ - 0	$ - 0	$ - 0
Sum of Costs	$ - 0		Sum of Benefits:	$ - 0
Net Benefits:	$ - 0
STUDENT NAME:

&F &A

IBUS3055 Lindblom Winter 2018-2019

Conclusion

CONCLUSION & RECOMMENDATIONS

Considering all your results, what are your policy recommendations? Do you prefer building the one large dam or the several smaller dams? Finally, which discount rate, 5 percent or 10 percent, do you think is most appropriate for your cost-benefit analysis? Why?

STUDENT NAME:

Conclusion:

&F &A

IBUS3055 Lindblom Winter 2018-2019