Evaluation of project proposals- Microeconomics
Proposal A
Proposal A envisages generation of electricity from water – a hydro-electric project. The useful economic life of this project is estimated to be 50 years. This project will generate 20,000 million (mn) units of electricity annually. Electricity will be sold to the public at a tariff of 10 cents per unit for the first twenty years, and 7.8 cents thereafter. The annual operation and maintenance costs will be 10 percent of the capital cost for the first twenty years and 5 percent there after.
The economic costs and benefits for this project can be estimated from Figure 1.
Proposal B
Proposal B is a thermal project – electricity will be generated from coal. The annual operation and maintenance cost for this project will be 25 percent of its capital cost. This project will have an useful economic life of 25 years. It will generate 18,000mn units of electricity annually.
Electricity from this project will be sold at 20 cents per unit. At the end of its useful life, this project can be sold for 2 percent of its capital cost. The economic costs and benefits for this project can be estimated from Figure 2.
Task
Your task is simply to summarize (in your own hand) the results of your analysis in the answer-sheet provided separately.
Notes:
– You must provide the background details (i.e., select calculations), for various answers provided by you in the answer-sheet, in an Anne-ure (no more than two pages). You may type-write your Anne-ure. The minimum permissible font size for the Anne-ure is 12
– The completed answer-sheet must however be a stand-alone document (i.e., the reader should be able to understand the entire logic behind your reasoning without needing to refer to the Anne-ure.
– There is no tolerance on specified word/page limits. Any written material beyond these limits will not be marked.
– Please tick (¥ only one bo- wherever multiple choice is provided.
