Suppose that a utility company is considering building a solar farm on outskirts of Scottsdale. This decision will create economic prots of $350,000/year to the company (which hires substantial numbers of local workers) after one year of construction but will cost $2,000,000 (paid upfront) to build. In addition, the increase in renewable energy generation will reduce reliance on fossil fuelsthus reducing the damages of pollution experienced by locals from $10,200 per year to $9,400 per year. Assume that these benets are experienced from the rst (post-construction) year onward and are permanent.

1.Assume that the discount rate is 6% (r=.06) and the evaluation horizon is 8 years from the present. Please neatly ll the blanks in the table below (assuming you are working from a social perspective and counting all costs and benets).

Time Benets Costs Net Benets Discounted Net Benets

0

1

2

3

4

5

6

7

8

2.What is the net present value of this proposed project? If eciency was the only objective for making the decision and we have fully accounted for all costs and benets would you recommend the project go ahead or not?

3.Would the demonstration of a $1.00 per family average willingness to pay for emissions reductions (due to climate concerns) for all families in the U.S. change your perception of the eciency of this project? (Yes/no and why?).