2) The initial costs of nuclear power plants are often high, but the plants yield returns for long periods of time. However, the storage of nuclear waste presents a cost that lasts a very long time. The probability of a catastrophic event from waste storage is very small, but because the damage from such an event may be very high, the average (expected value) damage from waste storage may be considered very high. Here is a simple case. The initial costs of the power plant are construction costs of $5 billion for each of the first three years. For simplicity, suppose there are only two years of operation and that the benefits are $10 billion a year for years four and five. But 100 years after the plant begins operation, the waste leaks, causing damages equal to $50 billion. Assume all costs and benefits are incurred at the beginning of the year. (20 points) a. Draw a timeline showing that shows costs and benefits occur. This will be a graph with years on the horizontal axis and benefits per year and costs per year on the vertical axis. If it is easier for you, make a table with benefits and costs in each year. b. What are the net benefits when the discount rate is zero? Show your calculations on this problem. c. Calculate the present value of costs at an interest rate of 5%. d. Determine whether net benefits are positive or negative at an interest rate of 5%. e. Now suppose that the discount rate is 10%. What happens to the net present value of the project? 2) The initial costs of nuclear power plants are often high, but the plants yield returns for long periods of time. However, the storage of nuclear waste presents a cost that lasts a very long time. The probability of a catastrophic event from waste storage is very small, but because the damage from such an event may be very high, the average (expected value) damage from waste storage may be considered very high. Here is a simple case. The initial costs of the power plant are construction costs of $5 billion for each of the first three years. For simplicity, suppose there are only two years of operation and that the benefits are $10 billion a year for years four and five. But 100 years after the plant begins operation, the waste leaks, causing damages equal to $50 billion. Assume all costs and benefits are incurred at the beginning of the year. (20 points) a. Draw a timeline showing that shows costs and benefits occur. This will be a graph with years on the horizontal axis and benefits per year and costs per year on the vertical axis. If it is easier for you, make a table with benefits and costs in each year. b. What are the net benefits when the discount rate is zero? Show your calculations on this problem. c. Calculate the present value of costs at an interest rate of 5%. d. Determine whether net benefits are positive or negative at an interest rate of 5%. e. Now suppose that the discount rate is 10%. What happens to the net present value of the project