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A local government agency is doing a cost-benefit study of a local pollution control program. The agency determines that the costs of the program are expected to be $80 per year in perpetuity. The agency expects that the benefits will be $50 per year for 50 years, then $150 per year thereafter.

1) One employee suggests using a discount rate of 4%. Find the net benefits of the program. In your answer set up the problem and use present value software or a table of present values to make the calculations.

2) Another employee suggests using a lower discount rate of 2%. Find the net benefits.

3) Compare the net benefits for the two discount rates. Does the pollution control program pass the feasibility test in each case? Discuss. Be sure to explain how the choice of discount rate affects the valuation today of future benefits and costs.