1. The Tennessee Valley Authority and the Environmental Protection Agency has asked for your help choosing between two projects to replace an existing coal-fired power plant for electricity generation. The first proposed project calls for the construction of a new 650 mega-watt coal-fired plant which requires relatively small construction costs but produces more particulate matter which is a major cause of asthma in the region. The second proposed project calls for the development of a 650 mega-watt wind farm which produces no particulate matter but is more costly to construct and impacts local property values. The payoffs for the proposed projects are summarized below Years 3 4 5 67 8 9 10 Total Project 1: Coal-fired plant 3200 Construction Cost of coal fuel Cost of treating asthma 40 40 40 40 40 40 40 40 40 40 10 12 14 16 18 20 0 6 Electricity revenues 400 400 400 400 400 400 400 400 400 400400 Project 2: Wind farm Construction Forgone pro 3600 valueS roper Electricity revenues 400 400 400 400 400 400 400 400400 400 400 TVA has asked for your recommendation based only on construction costs, fuel costs. and electricity revenues. Based on these costs and benefits, what would you recommend to the officials at TVA if you use a 4% discount rate? EPA has asked for your recommendation based on all costs and benefits. What would you recommend to the officials at TVA if you use a 4% discount rate? How would your recommendation change if you used a 2% discount rate? TVA has indicated that they project the cost of coal to drop to S30,000 per year due to decreased demand. How would this drop in the price of fuel change your analysis? What if you extended your time horizon to consider 20 years into the future? a. b. c. 1. The Tennessee Valley Authority and the Environmental Protection Agency has asked for your help choosing between two projects to replace an existing coal-fired power plant for electricity generation. The first proposed project calls for the construction of a new 650 mega-watt coal-fired plant which requires relatively small construction costs but produces more particulate matter which is a major cause of asthma in the region. The second proposed project calls for the development of a 650 mega-watt wind farm which produces no particulate matter but is more costly to construct and impacts local property values. The payoffs for the proposed projects are summarized below Years 3 4 5 67 8 9 10 Total Project 1: Coal-fired plant 3200 Construction Cost of coal fuel Cost of treating asthma 40 40 40 40 40 40 40 40 40 40 10 12 14 16 18 20 0 6 Electricity revenues 400 400 400 400 400 400 400 400 400 400400 Project 2: Wind farm Construction Forgone pro 3600 valueS roper Electricity revenues 400 400 400 400 400 400 400 400400 400 400 TVA has asked for your recommendation based only on construction costs, fuel costs. and electricity revenues. Based on these costs and benefits, what would you recommend to the officials at TVA if you use a 4% discount rate? EPA has asked for your recommendation based on all costs and benefits. What would you recommend to the officials at TVA if you use a 4% discount rate? How would your recommendation change if you used a 2% discount rate? TVA has indicated that they project the cost of coal to drop to S30,000 per year due to decreased demand. How would this drop in the price of fuel change your analysis? What if you extended your time horizon to consider 20 years into the future? a. b. c
