You are an economist with the USDI- Fish and Wildlife Service. You have been asked to assess the financial and economic feasibility of a major wetland restoration project in southwestern Minnesota. This initiative will use conservation easements to permanently idle marginal farmland and restore the wetlands that once existed. Your agency’s scientists estimate that wildlife habitat and ground water quality will continue to decline significantly during the project’s 40 year project timeline if the wetland restoration project is not undertaken. Given your knowledge of project analysis design and implementation, give answers to the following questions
a- If the analysis assumes wetland conditions will remain constant over the project’s life (even though your agency’s scientists say wetland conditions will deteriorate over the next 40 years), will the analysis of the restoration project underestimate or overestimate actual impacts?
b-Explain how inflation should be treated in the financial and economic analysis with respect to project costs, benefits, and the discount rate ?
c- The Fish and Wildlife Service is interested in assessing the financial feasibility of this project, as well as the extent to which the project will produce net benefits to society through an economic analysis of this same project. Contrast the differences in the types of costs and benefits that would be included in a financial and economic analysis.
d- Your supervisor heard “sensitivity analysis” is used in financial and economic analyses. Explain what sensitivity analysis is and why it’s important in project analysis