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Questions › GATE › GATE 2025 › Q62
2 marksPublic Economics › Public expenditure and public debt › Public expenditure: growth and cost-benefit analysisModerateabout 3 min

GATE 2025 Question 62: Public expenditure and public debt

The installation cost (IC) of a solar power plant is INR 89,000. The plant shall be operational for 5 years. The recurring costs for maintenance of the solar plant per year is INR 5,000 but the benefits it creates including reduction in emissions amounts to INR 25,000 per year. These are the only costs and benefits associated with this project. The social discount rate (rrr) considered is 4% per year. The year-wise information is presented below

Year (t)Discount Factor (1+r)−t(1+r)^{-t}(1+r)−tBenefits (in '000)Costs (in '000)
01—IC
10.96255
20.92255
30.89255
40.85255
50.82255

The net present value of the plant is ______ (in integer)

Answer and worked solution

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Plain-text version

The installation cost (IC) of a solar power plant is INR 89,000. The plant shall be operational for 5 years. The recurring costs for maintenance of the solar plant per year is INR 5,000 but the benefits it creates including reduction in emissions amounts to INR 25,000 per year. These are the only costs and benefits associated with this project. The social discount rate (r) considered is 4% per year. The year-wise information is presented below | Year (t) | Discount Factor (1+r)^(-t) | Benefits (in '000) | Costs (in '000) | 0 | 1 | — | IC | 1 | 0.96 | 25 | 5 | 2 | 0.92 | 25 | 5 | 3 | 0.89 | 25 | 5 | 4 | 0.85 | 25 | 5 | 5 | 0.82 | 25 | 5 | The net present value of the plant is (in integer)

Public expenditure and public debt has come up 29 times in 6 exams since 2012.

What this question tests

This question is on Public expenditure: growth and cost-benefit analysis, part of Public expenditure and public debt in Public Economics.

Why government spending grows and how projects are appraised.

TestStop has 5 past-paper questions on this subtopic.

Take this paper as a timed mockMore on Public expenditure: growth and cost-benefit analysis

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Question from the GATE 2025 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.