An area is designated for a large re-wilding project and we need to evaluate the net social value of this project. 7 persons derive benefit from this project: In the table below the annual valuation these persons' benefit from the re-wiling is stated:
|
Person
|
Anne
|
Britt
|
Claus
|
Done
|
Erik
|
Frank
|
Gitte
|
|
TWTP per year
|
20
|
35
|
40
|
34
|
30
|
20
|
40
|
There are two types of costs:
- Costs from establishing the area, and buying and transporting the animals: 1000 (only once)
- Maintenance costs: 100 per year
Exercise 1: Calculate the NPV of the project when the time frame is 10 years and argue whether the project should be undertaken. Use a discount rate of 5 %
Exercise 2: How much needs the discount rate be in order for the NPV to be zero
Consider now that we expect that the TWTP for each person increases by 2 % each year because that re-wiling project slowly also produces higher biodiversity and so on.
Exercise 3 : Recalculate the NPV of the project and comment on the changes this makes
Exercise 4: Will your decision from exercise 3.1 change if 20 years instead of 10 years? (Assume again no increase in WTP over time)
Exercise 5: Discus the concept / idea of discounting (take the above results as point of departure for your discussion)
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