1. A local city council is considering a major transit expansion. The project requires purchases of $40 million in equipment now and annual expenses of $1 million each year starting in 2 years. The transit expansion is expected to reduce road congestion beginning next year and reduce respiratory illness in the region by 5% in 3 years. These benefits have been estimated monthly as 30 hours less time commuting. There are 250,000 commuters in the region and the average wage is $30 hour. Respiratory illness costs the local health system $500,000 each year. The council has asked you to complete a cost benefit analysis of the project. Present one with a time horizon of 5 years and another over the next 20 years. Current interest rates are 2%
2. Calculate the PV of $10 million received in 5 years
3. Suppose in a certain city the demand for low-cost housing can be characterized by the equation

P = 200 - 2Q, where Q is housing measured in square feet. Further, suppose that supply is characterized by the equation: P = 15 + 3Q. (A) How much consumer surplus is there? (B) Suppose that a grant is given so that the supply of housing is increased. This increase changes the supply curve to P = 3Q. How much does consumer surplus change because of the grant?

Correction: Question 2 in the Cost Benefit exercise did not include a discount rate. Please use 2% for r.