- 15 Marks
Question
a. Mr. Make-No-Mistake has N200,000 which he decides to invest if he can secure an assurance that the investment will earn at least 10% p.a. He is considering three projects:
- Project A: Will earn N218,000 at the end of the 1st year.
- Project B: Will earn N250,000 at the end of the 2nd year.
- Project C: Will earn N140,000 at the end of 1st year and another N100,000 at the end of 2nd year.
If none of the projects is undertaken, Mr. Make-No-Mistake will invest his N200,000 in something else that will earn him 10% p.a.
You are required to assess and advise Mr. Make-No-Mistake on which of the projects he should undertake. (12 Marks)
b. Identify THREE main features of Cost-Benefit Analysis in public project appraisal. (3 Marks)
Answer
Project A – The negative NPV indicates that the project would fail to make the
expected return of 10%.
Project B -The positive NPV indicates that the project will earn more than the required
rate of return of 10%.
Project C: The positive NPV indicates that the project will earn more than the
required rate of return of 10%.
Conclusion:Project B has an NPV of N6,600 while project C has NPV of N9,914 both
positive. Project C should be undertaken because it has a higher positive NPV.
b. Main Features of Cost-Benefit Analysis (3 Marks)
- Analytical Decision-Making Tool: Used in public projects for comparing costs and benefits systematically.
- Monetary Valuation: Assesses project costs and benefits in monetary terms.
- Discounting Process: Uses social discount rates to value benefits and costs over time for long-term public projects.
- Topic: Public Sector Reforms
- Uploader: Kofi