Assignment task:
For this question, assume you are a manager within a fictional Non-Government Agency (NGO), working within an imaginary Department of Environment and Development. Your department has been asked to evaluate a development proposal, the key features of which are as follows:
- The development is to build an advanced manufacturing plant that will produce Robotic Dolls. These products are expected to be in high demand for many years into the future, and the development is expected to be highly profitable. Thus benefits of building this factory include providing secure employment for the workers and delivering a stream of dividend payments to the shareholders.
• The development will be located in a region of pristine rainforest, at a site located on the banks of a river. The river flows out to the Ocean, discharging very close to a World Heritage listed marine park which provides the home for many fish and turtle species found nowhere else in the world. On the edge of the rainforest there is an eco-friendly tourism resort that attracts visitors from all over the world. The rainforest is also home to a tribe of native peoples who have practiced their culture here for many thousands of years, and also offer cultural experiences (bush tucker and dancing exhibitions) to tourists.
• For the development to take place a significant area of the rainforest, on the bank of the river, would need to be cleared to make space for the factory itself and related infrastructure such as access roads.
Question: Think about how you would go about preparing a cost benefit analysis to compare the benefits from the development against the loss or degradation of the rainforest.
a) Provide a list of what you think are likely to be the most significant benefits and costs from the development.
b) Discuss how you would determine the appropriate time period for the cost-benefit analysis (CBA) calculation, and the appropriate discount rate that should be used
c) Suppose you completed the CBA and derived a NPV of $1,000. Does this result mean that you should recommend the project be accepted on financial grounds? Are there any additional steps that you should take before finalizing your recommendation?