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    PA 242.2 Problem Set 2

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    Laurence Niña X. Ortiz
    This document outlines 4 problems for a problem set on public policy analysis. Problem 1 asks about building a new public park and financing it through resident donations. Problem 2 evaluates 3 projects and a road for a remote municipality based on benefit-cost ratios and net benefits. Problem 3 compares building a basketball court or swimming pool for a barangay based on net present value. Problem 4 uses sensitivity analysis to determine the maximum discount rate that would yield a positive net benefit for a proposed dam project with costs and variable annual benefits over 100 years.

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    PA 242.2 Problem Set 2

    Uploaded by

    Laurence Niña X. Ortiz
    73 views2 pages
    This document outlines 4 problems for a problem set on public policy analysis. Problem 1 asks about building a new public park and financing it through resident donations. Problem 2 evaluates 3 projects and a road for a remote municipality based on benefit-cost ratios and net benefits. Problem 3 compares building a basketball court or swimming pool for a barangay based on net present value. Problem 4 uses sensitivity analysis to determine the maximum discount rate that would yield a positive net benefit for a proposed dam project with costs and variable annual benefits over 100 years.

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    This document outlines 4 problems for a problem set on public policy analysis. Problem 1 asks about building a new public park and financing it through resident donations. Problem 2 evaluates 3 projects and a road for a remote municipality based on benefit-cost ratios and net benefits. Problem 3 compares building a basketball court or swimming pool for a barangay based on net present value. Problem 4 uses sensitivity analysis to determine the maximum discount rate that would yield a positive net benefit for a proposed dam project with costs and variable annual benefits over 100 years.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    73 views2 pages

    PA 242.2 Problem Set 2

    Uploaded by

    Laurence Niña X. Ortiz
    This document outlines 4 problems for a problem set on public policy analysis. Problem 1 asks about building a new public park and financing it through resident donations. Problem 2 evaluates 3 projects and a road for a remote municipality based on benefit-cost ratios and net benefits. Problem 3 compares building a basketball court or swimming pool for a barangay based on net present value. Problem 4 uses sensitivity analysis to determine the maximum discount rate that would yield a positive net benefit for a proposed dam project with costs and variable annual benefits over 100 years.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    PA 242.

    2 Problem Set 2
    [due date: 21 May 2023, Sunday / 11:59 PM]

    1. A town is considering building a new park open to the public to be financed fully by a one-
    time contribution among all residents willing to donate. It has polled its residents and
    estimated that the population of 750,000 is divided into three groups, members of which
    would individually be willing to pay the following amounts for the park: [3 points]
    Number of Residents Amount each is willing to pay
    A: 200,000 ₱ 0
    B: 250,000 ₱ 12
    C: 300,000 ₱100

    a. If the park can be built for ₱15 million, should it be?

    b. If the cost is ₱15 million, and if the only way to pay for the park is to divide its cost equally
    among the entire population, would a majority vote for it?

    c. If the town administrator decides that the park will be financed equally among residents
    but only by those willing to pay, will the collected funds be enough to cover the cost?

    2. Three mutually exclusive projects are being considered for a remote municipality in Palawan:
    Project R, a recreational facility, has estimated benefits of ₱10 million and costs of ₱8 million;
    project F, a forest preserve with some recreational facilities, has estimated benefits of ₱13
    million and costs of ₱10 million; and project W, a wild animal reserve area with restricted
    public access, has estimated benefits of ₱5 million and costs of ₱1 million. In addition, a road
    could be built for a cost of ₱4 million that would increase the benefits of project R by ₱8
    million, increase the benefits of project F by ₱5 million, and reduce the benefits of project W
    by ₱1 million. Even in the absence of any of the other projects, the road has estimated
    benefits of ₱2 million. [2 points]

    a. Calculate the benefit-cost ratio and net benefits for each possible alternative to the status
    quo. Note that there are seven possible alternatives to the status quo: R, F, and W, both
    with and without the road, and the road alone.

    b. If only one of the seven alternatives can be selected, which should be selected based on
    BCR? Based on net benefits?
    3. A barangay’s recreation department is trying to decide how to use a piece of land. One option
    is to put up a basketball court with an expected life of eight years. Another is to install a public
    swimming pool with an expected life also of eight years. The basketball court would cost
    ₱180,000 to construct and yield net benefits of ₱40,000 at the end of each of the eight years.
    The swimming pool would cost ₱1.05 million to construct and yield net benefits of ₱170,000
    at the end of each of the eight years. Each project is assumed to have zero salvage value at
    the end of its life. Using a real discount rate of 5 percent, which project offers larger net
    benefits? [2 points]

    4. The initial cost of constructing a small dam that is expected to be operational for 100 years is
    ₱425 million. The annual net benefits will depend on the amount of rainfall: ₱18 million in a
    “dry” year, ₱29 million in a “wet” year, and ₱52 million in a “flood” year. Meteorological
    records indicate that over the last 100 years, there have been 86 “dry” years, 12 “wet” years,
    and 2 “flood” years. Thus, this meteorological data can be used as probability weights to
    estimate the annual net benefits of the dam. Assume the annual benefits, measured in real
    pesos, begin to accrue at the end of the first year. Using sensitivity analysis of varying discount
    rates starting at 7% then subtracting 1% with each succeeding scenario, what is the maximum
    discount rate at which the project will yield a positive net benefit? [3 points]

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