Suppose you are an economist at the US Army Corps of Engineers. The Corps is considering whether to build a dam (such as the Kinzua Dam) to prevent flooding on a major river. The Corps asks you to conduct a cost benefit analysis of the project. The dam is expected to be in service for over 100 years, so you can assume the time horizon is essentially infinite. You have the following information: Estimated costs: • $1 billion in construction costs in the first year $10 million in maintenance costs every year, forever Estimated benefits: • $20 million in property damage avoided every year, forever • 3 flooding deaths prevented every year, forever la. Assumer-3% and the value of a statistical life is $10 million. Calculate the present value of net benefits for the dam. Do you recommend that the project be approved? 1b. Assume the VSL is still $10 million. How big would the discount rate have to be to change your recommendation of the dam's approval? (In other words, find r such that the present value of net benefits is zero)

Suppose you are an economist at the US Army Corps of Engineers. The Corps is considering whether to build a dam (such as the Kinzua Dam) to prevent flooding on a major river. The Corps asks you to conduct a cost benefit analysis of the project. The dam is expected to be in service for over 100 years, so you can assume the time horizon is essentially infinite. You have the following information: Estimated costs: • $1 billion in construction costs in the first year $10 million in maintenance costs every year, forever Estimated benefits: • $20 million in property damage avoided every year, forever • 3 flooding deaths prevented every year, forever la. Assumer-3% and the value of a statistical life is $10 million. Calculate the present value of net benefits for the dam. Do you recommend that the project be approved? 1b. Assume the VSL is still $10 million. How big would the discount rate have to be to change your recommendation of the dam's approval? (In other words, find r such that the present value of net benefits is zero)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter1: Introduction And Goals Of The Firm

Section: Chapter Questions

Problem 4E: In the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act...

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