ECON7740 Cost Benefit Analysis Tutorial 2
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ECON7740 Cost Benefit Analysis
Tutorial 2
Question 1
Suppose you have been offered a choice of two part-time jobs: 10 hours a week stacking shelves at the supermarket for $10 dollars an hour; or 12 hours a week working in the bar of the local hotel for $8 per hour plus a free case of beer once a week. Assuming that you will take one and only one of the jobs, what is:
(i) the opportunity cost of taking the supermarket job? (ii) the opportunity cost of taking the hotel job?
Question 2 - Refer to the relevant Excel sheet.
Use the discount factor to find the NPV of both projects using the following table.
|
Project/Year |
0 1 2 3 |
|||
|
Project A Cash Flow Project B Cash Flow Discount factor (10%) |
-100 -100 |
50 30 |
40 45 |
30 50 |
|
Discounted Cash Flow of A Discounted Cash Flow of B |
|
NPV of A (10%) = NPV of B (10%) = |
Question 3 - Refer to the relevant Excel sheet.
a) Calculate the NPV for both projects using the =NPV() formula.
b) Create a plot of the NPV curves.
c) Identify the switching point of the projects.
|
Project/Year |
0 1 2 3 |
|||
|
Project A Project B |
-100 -100 |
50 30 |
40 45 |
30 50 |
|
Discount Rate 10% |
|
NPV of A = NPV of B = |
NPV Curves
|
Dis Rate 2% 4% 6% 8% 10% 12% 14% 16% |
NPV of A |
NPV of B |
Question 4 - Refer to the relevant Excel sheet.
Use the template to calculate the net cash flows, NPV and IRR of the projects.
Net Cash Flow
|
NPV of A = NPV of B = |
IRR (A) = IRR (B) = |
|
Working Table Discount rate = 10.0% |
|||
|
Item/Year |
0 1 2 3 |
||
|
Capital Costs - A Capital Costs - B Operating Costs - A Operating Costs - B Gross Revenues - A Gross Revenues - B
Net Revenues - A Net Revenues - B |
-100 -100 - 20 - 15 70 45 |
-25 -20 65 65 |
-30 -25 60 75 |
2022-09-02