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FINAL EXAMINATION 2010/2011 BC30603 PROJECT PLANNING AND EVALUATION

QUESTION 1 a. For individual riders the important costs are: the purchase price of a helmet, the reduced pleasure of riding your bicycle while wearing a helmet, diminished appearance when you take the helmet off (bad hair), the inconvenience of keeping the helmet available and maybe for some increased sense of safety (leading to increased risk taking due to moral hazard). The most significant categories of benefits are probably: reduced risk of serious head injury (morbidity) and reduced risk of death (mortality).

b. These are: program enforcement (a cost) reduced health care costs (a benefit), although this may not be as high as one might expect if bicyclists ride more aggressively because they feel safer (this is called offsetting behaviour or moral hazard) increased pollution, due to cyclists switching to cars (a cost) a likely minor issue

QUESTION 2

NPV(one basketball court project)

$180,000
i 1

40,000 $89,310 (1 0.04) i

NPV(one swimming pool project)

$2,250 ,000
i 1

24

170 ,000 $341,984 (1 0.04 ) i

NPV(three successive basketball court projects)

= $89,310 + $89,310/(1+.04)8 + $89,310/(1+.04)16 (see how the NPV at year 8 is then rediscounted at year 8 (actually year 16) and year 16 (actually year 24) = $89,310 + $65,258 + $47,683 = $202,251 Thus, three successive basketball court projects offer a lower present value of net benefits than the swimming pool project. One should build the swimming pool.

QUESTION 5 a). 1. Program A = COST NUMBER OF VACCINATIONS = RM 20,000 2000 = RM 10 2. 3. 4. 5. Program program Program Program B = RM11 C = RM12 D = RM14 E = RM15

PROGRAM A IS MOST COST EFFECTIVE WITH A COST - EFFECTIVENESS OF RM10/ VACCINATIONS.

b). Program C = COST NUMBER OF VACCINATIONS = RM 72,000 6000 = RM 12 4. Program D = RM14 5. Program E = RM15 OF THE PROGRAM THAT YIELDS AT LEAST 5000 VACCINATIONS, PROGRAM C IS MOST COST EFFECTIVE WITH A COST - EFFECTIVENESS OF RM12/ VACCINATIONS.

c). USING COST BENEFIT ANALYSIS

PROGRAM A B C D E

BENEFIT RM20 X 2,000 = RM 40,000 RM20 X 4,000 = RM 80,000 RM20 X 6,000 = RM 120,000 RM20 X 8,000 = RM 160,000 RM20 X 10,000 = RM 200,000

COST RM20,000 RM44,000 RM72,000 RM112,000 RM150,000

RATIO = BENEFIT/ COST = RM40,000/RM 20,000 =2.00 1.818 1.67 1.43 1.33

NET BENEFIT = BENEFIT - COST RM20,000 RM36,000 RM48,000 RM48,000 RM50,000

SWITCHING TO A CBA, WE FIND THAT PROGRAM E OFFERS THE LARGEST NET BENEFIT RM50,000 AND SHOULD THEREFORE BE ADOPTED