01 May Proposal AProposal A envisages generation of electricity from water – a hydro-electric project. The
Proposal A
Proposal A envisages generation of electricity from water – a hydro-electric project. The
useful economic life of this project is estimated to be 50 years. This project is to be located
in a remote area, on a parcel of fertile agricultural land with an expected yield (benefits) of
$2 billion (bn) over the life of this project. This land, if bought at the prevailing market
price, will cost $500mn. Other capital expenditure (project conception, feasibility planning,
design, construction, etc.) on this project will be $9.5bn. At the end of project life, project
infrastructure will be sold for 18.6 percent of its capital cost. This project will generate
13,070mn units of electricity annually. Electricity will be sold to the public at a tariff of 10
cents per unit. The annual operation and maintenance costs will be 3 percent of the capital
cost.
Other economic costs and benefits for this project can be estimated from Figure 1.
Proposal B
Proposal B is a thermal project – electricity will be generated from coal. This project will
require a one-off expenditure of $700mn to expand the coal mining capacity of the existing
mine near the proposed site. In the absence of this project, the site will be developed into a
major industrial complex which will have an expected lifetime (i.e., 25 years) benefit of
$4bn. The project site is currently priced at $300mn. Other infrastructure related capital
costs for the project are estimated to be $5bn. The annual costs for the project, as a
percentage of the capital cost, will comprise: a) operation and maintenance (4 percent), and
b) fuel (6 percent). The project will generate 10,508mn units of electricity annually.
Electricity from this project will be sold at 12 cents per unit.
Other economic costs and benefits for this project can be estimated from Figure 1.
Task
Your task is simply to summarize the results of your analysis in the answer-sheet provided
separately.
Notes:
? You must provide the background details (i.e., select calculations), for various answers
provided by you in the answer-sheet, in an Annexure (no more than two pages). The
minimum permissible font size for the Annexure is 12 (Times Roman or equivalent).
? The completed answer-sheet must however be a stand-alone document (i.e., the reader
should be able to understand the entire logic behind your reasoning without needing to
refer to the Annexure.
? Please tick (v) only one box wherever multiple choice is provided
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