Data on Potential Investments - If the environmental remediation is not completed, the government will fine the factory $225,000. - The environmental remediation will take one year to complete. Thus, the project must be begun by year 4 if it is to be completed on time - The cost of the remediation depends on when the project is begun: - The factory's cost of capital is 20% - Mr. Jones is the sole owner of the factory, and he will ultimately make the final decision of when (and if) to begin the environmental remediation. Since Mr. Jones is the owner of the factory any money spent on environmental remediation means less money in his pocket. - Mr. Jones values the present significantly more than the future, and you estimate that he has a hyperbolic discounting factor of =0.80 Questions 1. What is the optimal time (if at all) to begin the environmental remediation project ignoring Mr. Jones' hyperbolic discounting? 2. From the perspective of year 0 , when would Mr. Jones want to schedule the remediation project considering his hyperbolic discounting? 3. Mr. Jones doesn't need to approve the project until right before the project is ready to begin. Will the project begin in the year it was scheduled? Explain your answer. 4. What year (if ever) will Mr. Jones actually approve the project? 5. How does hyperbolic discounting explain the tendency of decision makers to engage in procrastination? 6. Can you identify another situation where hyperbolic discounting can distort financial decision making? Explain your