You are asked to conduct a benefit-cost analysis to recommend ifthe local government should undertake a project to develop Park. Aset of costs and benefits is given for a 10-year period.

Costs (thousands of Years 1 2 3 4 5 6 7 8 9 10 1250 Construction 130 130 130 130 130 130 130 130 130 130 Recurring costs 20 20 20 20 20 20 20 20 20 20 20 Foregone recreation Benefits (thousands of Years 0 1 2 3 4 5 6 7 8 9 10 Increased tourist revenue 300 300 300 300 300 300 300 300 300 300 300 Net NPV 5% NPV (a 10%————– a. What is the role of discount rate in the benefit-cost analysis of an environmental project? b. Calculate the NPV of the project for the 5% discount rate. Should you recommend the project if the discount rate is 5%? Why or why not? c. Calculate the NPV of the project for the 10% discount rate. Should you change your recommendation if the discount rate is 10%? Why or why not? Show transcribed image text Costs (thousands of Years 1 2 3 4 5 6 7 8 9 10 1250 Construction 130 130 130 130 130 130 130 130 130 130 Recurring costs 20 20 20 20 20 20 20 20 20 20 20 Foregone recreation Benefits (thousands of Years 0 1 2 3 4 5 6 7 8 9 10 Increased tourist revenue 300 300 300 300 300 300 300 300 300 300 300 Net NPV 5% NPV (a 10%————– a. What is the role of discount rate in the benefit-cost analysis of an environmental project? b. Calculate the NPV of the project for the 5% discount rate. Should you recommend the project if the discount rate is 5%? Why or why not? c. Calculate the NPV of the project for the 10% discount rate. Should you change your recommendation if the discount rate is 10%? Why or why not?

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