Problem1. Consider the ex of renovating highway that is in poor shape, with large holes and crumbling shoulders which slow down traffic and pose an accident risk. The costs comprise the inputs: asphalt 1 million bags, labour 1 million hours and the maintenance cost which is $10 million/year. Assume the price of Asphalt is $100/bag. Half of the workers worked in other industries before coming to work for this project and half of workers were unemployed before working for this project. Suppose the wage for these workers is $20/hour. The reservation wage for those unemployed is $5/hour. Assume the nominal interest rate is 7% and the inflation rate is 3%. The benefits for the project include the driving time saved and life saved. Assume the project can save 500,000 hours in total. People would also pay $1 dollar more to save half an hour. The lives saved are 5 lives a year. Suppose people will pay $5 million to save one person.
problem1. Evaluate the cost of the project?
problem2. Evaluate the benefit of the project?
problem3. Is this project admissible and if so, why?
problem4. Outline and illustrate the various steps you will undertake to assess the feasibility of a public project.
problem5. Why is the Net Present Value considered as the most excellent method of evaluation?