A private firm is deciding to create a dam with a project life of 30 years. There are two main benefits from the dam that the firm would like to produce: electricity sold to a nearby city and irrigated water sold to farmers. Creating the dam will take 4 years. Electrical production and selling irrigated water starts at the 5th year of the project. Total revenue from electrical production is $3 million annually. Revenues from electricity rise at rate of 6% given the projected inflation of the price of energy starting after the 5th year. Total revenues from selling irrigated water $1 million annually. Revenues from irrigated water are fixed given the negotiated contract between the firm and farmers. All benefits are incurred at the end of the year. The capital investment costs $20 million spread evenly over the first 4 years of the project. After the dam is constructed, there are annual operating, maintenance and labor costs. The annual operating cost is $250,000 with an inflation rate of 2%. The annual maintenance cost is $200,000 with an inflation rate of 4% and the annual labor cost if $100,000 with an inflation rate of 3%. All costs are incurred in the beginning of the year and inflation occurs at the beginning of the fifth year. The discount rate of the owner of the firm is 10%.

The dam also leads to a reduction in fishing activity because it disrupts the life cycle of fishes. This leads to an annual loss of $700,000 in fishing activity starting in the very beginning of the project.

Q1: Set up the parameters table and financial flow in sheet1 of the private firm. Include only relevant benefits and costs that the private firm would care about. Solve for the net present value and benefit cost ratio. Give your recommendation to the private firm in sheet 1 regarding the feasibility of the dam project.
Q2: Set up the parameters table and financial flow in sheet1 of a social planner who cares about all costs and benefits that society would incur because of the dam. In sheet 2 calculate net present value and the benefit cost ratio. Give your recommendation to the social planner in sheet 2 regarding the feasibility of the dam project.
Q3: Give one shortcoming of benefit cost analysis as a tool for project evaluation. Write your answer in sheet 2.