Question 5: Suppose the city owns a toll road (similar to the 407}. Kim takes 200 trips per year on the toll road. Each trip Kim takes on the road costs $6.00. When taking the toll road, the trip takes 20 minutes. When taking the route with no tolls, her trip takes her 30 minutes. If it were any more expensive (even a cent} Kim would not take the toll road and instead take the route without tolls. a} What is the value of Kim's time? Suppose the city is considering a project to improve the toll road. This improvement would allow Kim to save an additional 5 minutes (it would now take 15 minutes to complete the trip}. Based on the project's costs, the city would need to raise the toll by $2.00 per trip. The increase in cost and benefit (from saving time} take place in one year and last forever. The interest rate is 25%. b} What is Kim's net present value ofthe benefits and costs ofthe project? Now suppose there are 10,000 identical people to Kim in the economy (let's call them higher income people}. The rest ofthe economy will not take the toll (lower income people}. In other words, only higher income people will use the toll. c} What are the total benefits and costs to the city as a whole? Some city councilors now propose an alternative project that consists ofan immediate tax of $100 on higher income people in order to improve public transit for lower income people. Suppose also that the government can only complete one ofthe projects. The lower income people will see a benefit at the end of year 1 of 1 million and at the end of year two of 1 million. Note: This project is a temporary improvement in public transportation with an immediate cost and that will start at the end year 1 and go until the end of year 2 and then disappear. d) What is the Present Value of this project? e) What project will the city choose ifthe dollar value of benefits for lower income people and higher income people are the same? f} What is the distributional weight of each dollar benefit received by a lower income individual that would make the present value ofthe two projects equal? (In other words: how much more would you need to value a dollar of benefit for a lower income person such that the public transit improvement will be equally as desirable?)