A developer wants to build houses on a piece of land that is currently under forest cover. The construction cost is 95 million and houses can be sold for 110million in one year after the construction. the development of the land causes the loss of ecosystem service from the forest. The value of the ecosystem service is $100,000 per year from now until forever.

with a discount rate of 10 % what is the present value of the net social benefit of this project assuming that construction starts immediately? please enter your answers in millions

What is the present value of the net social benefit of this project assuming that construction starts immediately? Please enter your answers in millions

Answer: -$1,000,000

Working

Since question asked to find Present value of the net social benefit, cost and gain of the developer is not considered because those are only the gain or loss of developer alone, same is not a social cost or benefit.

Present value of the net social benefit will be present value of loss of ecosystem service from the forest. Formula for calculating present value of future cash flows is as follows’

Present value of Net social benefit         = loss of ecosystem service from the forest ÷ Discount rate

                                                                                = $100,000 ÷ .10

                                                                                = $1,000,000