Table 2. Annual benefits associated with a one-ton reduction in VOCs (million S per year) where annual benefits begin in the vear 2025 (three years into the future). To minimize required computations, we assume ammal benefits are constant for vears 2025 to 2031. 2) The state legislature tells you to use a low discount rate of 6.0% reflecting the current short term interest rate (low cost of money) in your analysis. Using this discount rate and 2022 as the base year (i.e. t=0 ), calculate the present value of benefits and the present value of costs under the two strategies. In present value terms, do the benefits exceed the costs of either strategy? What is the net present value of each policy and associated benefit-cost ratio? Is each policy equally preferred? If not, which is the preferred policy? Why? Assume, over time, air quality bas been annually declining in Columbia, South Carolina. Heavy traffic loads, growth in industrial activity, and poor geography have combined to produce fiecuent health wamings in the city, especially in summer. Violations of the Environmental Protiction Agencies O3 (ozone) standard are particularly frequent. During the last year, the city had more than 148 days in which the EPA 0.12-ppm 1-hour standard was exceeded. Of equal concern is the fact that O3 measurements have been as much as 3-times the EPA standard on violation days. On the worst days, schoolchildren are not permitted to go outside for recess and sick and elderly individusls are advised to stay inside. A recent study of air pollution by the Office of Technology Assessment has developed policies reduce emission of volatile orgnaic compounds (VOCs). A reduction in VOC emissions will alleviate some (but not all) of the O3 problem in Columbia. Assume the two most promising strategies for reducing VOCs in Columbia have been identified. You have been asked by the state legislature to assess these two strategies using Benefit-Cost Analysis (BCA). The legislature has asked for a comprehensive study of benefits and costs for a ten-year planning horizon, spanning the years 2022-2031. The two VOC-reduction strategies are as follows: Policy I: Involves using an existing combination of pollution control measures that consist of a reduction in the volatility of gasoline, and substitution of mathanol for gasoline in state and private vehicles. Initial costs are low but costs are expected to rise over time because the ability to apply existing pollution control measures to new situations (especially industrial sources) is expected to become costlier. Policy II: Requires substantial investment in research and development to foster technological breakthroughs in the elimination reduction of VOCs in the production and transportation of some products. Research and implementation costs will be extremely high during the first two years, but will rapidly decrease as the new technology becomes readily available through mass production. The state will choose either Policy. I or Policy II based on your analysis. Your task, therefore, is to compare two air quality improvement strategies: one that relies only on Policy I measures, and the other that relies only on Policy. II measures. The annual expected costs of each strategy is listed in Table 1 on the next page. Epidemiological (long-term medical) studies have estimated the annual expected health benefits of VOC reductions. These annual benefits fall into three categories as listed in Table 2 . For simplicity it is assumed that both polices provide the same annual dollar benefit for each type of health benefit. To simply the analysis, assume the undiscounted annual health benefit for each of the three health benefits is constant over the ten-year period. Table 2. Annual benefits associated with a one-ton reduction in VOCs (million S per year) where annual benefits begin in the vear 2025 (three years into the future). To minimize required computations, we assume ammal benefits are constant for vears 2025 to 2031. 2) The state legislature tells you to use a low discount rate of 6.0% reflecting the current short term interest rate (low cost of money) in your analysis. Using this discount rate and 2022 as the base year (i.e. t=0 ), calculate the present value of benefits and the present value of costs under the two strategies. In present value terms, do the benefits exceed the costs of either strategy? What is the net present value of each policy and associated benefit-cost ratio? Is each policy equally preferred? If not, which is the preferred policy? Why? Assume, over time, air quality bas been annually declining in Columbia, South Carolina. Heavy traffic loads, growth in industrial activity, and poor geography have combined to produce fiecuent health wamings in the city, especially in summer. Violations of the Environmental Protiction Agencies O3 (ozone) standard are particularly frequent. During the last year, the city had more than 148 days in which the EPA 0.12-ppm 1-hour standard was exceeded. Of equal concern is the fact that O3 measurements have been as much as 3-times the EPA standard on violation days. On the worst days, schoolchildren are not permitted to go outside for recess and sick and elderly individusls are advised to stay inside. A recent study of air pollution by the Office of Technology Assessment has developed policies reduce emission of volatile orgnaic compounds (VOCs). A reduction in VOC emissions will alleviate some (but not all) of the O3 problem in Columbia. Assume the two most promising strategies for reducing VOCs in Columbia have been identified. You have been asked by the state legislature to assess these two strategies using Benefit-Cost Analysis (BCA). The legislature has asked for a comprehensive study of benefits and costs for a ten-year planning horizon, spanning the years 2022-2031. The two VOC-reduction strategies are as follows: Policy I: Involves using an existing combination of pollution control measures that consist of a reduction in the volatility of gasoline, and substitution of mathanol for gasoline in state and private vehicles. Initial costs are low but costs are expected to rise over time because the ability to apply existing pollution control measures to new situations (especially industrial sources) is expected to become costlier. Policy II: Requires substantial investment in research and development to foster technological breakthroughs in the elimination reduction of VOCs in the production and transportation of some products. Research and implementation costs will be extremely high during the first two years, but will rapidly decrease as the new technology becomes readily available through mass production. The state will choose either Policy. I or Policy II based on your analysis. Your task, therefore, is to compare two air quality improvement strategies: one that relies only on Policy I measures, and the other that relies only on Policy. II measures. The annual expected costs of each strategy is listed in Table 1 on the next page. Epidemiological (long-term medical) studies have estimated the annual expected health benefits of VOC reductions. These annual benefits fall into three categories as listed in Table 2 . For simplicity it is assumed that both polices provide the same annual dollar benefit for each type of health benefit. To simply the analysis, assume the undiscounted annual health benefit for each of the three health benefits is constant over the ten-year period