The government of Philippines is proposing a new program to encourage banana farmers to reduce their use of chemicals. Let us assume the present cost of the program as 1,000,000 pesos per participant. The benefits of the program are the reduction in environmental cost estimated at a present value of 4, 000, 000 pesos per participant. However, the number of farmers that will participate in the program is not known with certainty, and the success of the program in reducing environmental cost is also uncertain. The following table provides 5 scenarios of number of participants and the probability of achieving the benefits from reducing environmental cost. Scenario Program participants % probability of reducing environmental cost A 15,000 30 B 18,000 25 C 20,000 20 D 22,000 15 Use the scenario approach of sensitivity analysis to estimate the NPV Under which scenarios will the project be feasible? What advice will you give to the government of Philippines on the feasibility of the project?
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