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Answer all parts of the question below. Your assignment should be from 3,500 to 4,000 words in length and ONE copy must be handed into room E52, Richmond Building by 3pm on Tuesday 7 August 2012. Please use your UB Number instead of your name on the front cover of your assignment and include your word count.
Failure to submit ONE copy of your work by this deadline will result in a mark of 0%
You are advised to plan your work carefully and back-up your work. Computing and printing problems will NOT be accepted as reasons for non-submission
Question
Outline the major issues that might be addressed in the economic analysis of rural water projects in developing countries. Is it practical to undertake such analysis? Justify your answer with reference to relevant literature sources. (50% of marks)
The information contained in Annex B relates to a proposed rural water project in Huddersfax District in the Pemberton Republic. Some basic data have been provided by the Economics Ministry to enable shadow prices to be calculated. These data are given in Annex A. On the basis of the information provided:
Estimate the NPV at 8% discount rate and the IRR of the proposed project at constant market prices. On this basis would you recommend the project? (30% of marks)
Estimate the NPV at 8% discount rate and the IRR of the proposed project at shadow prices. Does the use of shadow prices change your decision? Explain any differences you observe between this result and the result at market prices. (20% of marks)
Some relevant literature sources can be found on the PAEA Blackboard under External Links>Water. You should also refer to materials in the reading list provided for the lecture on Benefits in the Infrastructure Sector. You can find this on the PAEA Blackboard under Course Documents>Reading Lists
Annex A National Parameters in the Pemberton Republic
The following national parameters have been estimated for the Pemberton Republic:
i) The shadow exchange rate is 1.10.
ii) The discount rate is 8%.
iii) The national average shadow wage rate for formal sector unskilled labour is 75% of the market wage.
iv) The national average shadow wage rate for skilled labour is 110% of the market wage.
In annexes B to E the following abbreviations are used:
F Foreign Exchange
D Domestic Resources
UL Unskilled Labour
SL Skilled Labour
T Transfer Payments
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