Consider the following two projects. Both have costs of $5,000 in Year 1. Project 1 provides benefits of $2,000 in each of the first four years only. The second provides benefits of $2,000 for each of Years 6 to 10 only. Compute the net present value of the net benefits using a discount rate of 6 percent. What can you conclude regarding these projects? Please show your work. (Assume that all costs and benefits are incurred at the end of the period.)
Consider the following two projects. Both have costs of $5,000 in Year 1. Project 1 provides benefits of $2,000 in each of the first four years only. The second provides benefits of $2,000 for each of Years 6 to 10 only. Compute the net present value of the net benefits using a discount rate of 6 percent. What can you conclude regarding these projects? Please show your work. (Assume that all costs and benefits are incurred at the end of the period.)
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Assume that the costs and benefits associated with a proposed government project are as follows:
| Year | Benefits (R millions) | Costs (R millions) |
| 0 (Now) | 200 | 500 |
| End of Year 1 | 500 | 500 |
| End of Year 2 | 1500 | 500 |
| End of Year 3 | 800 | 200 |
(a) If the discount rate is 5 percent, calculate the present value of the net benefits for this project (show your work).
(b) Not all of the benefits associated with this project are easily quantifiable in Rand terms. What can be done to account for these factors?
(c) Detail the limitations associated with cost -benefit analysis.
