The rise in the use of renewable fuels like ethanol had substantial impacts on states like North Dakota. The potential for these fuels is irrefutable. However, investment in renewables carries substantial business risk when federal mandates are not sufficient to mitigate risk. Imagine you are a member of the North Dakota State Legislator. You are faced with the choice of whether or not subsidies should be implemented across ND or not.

A. Explain how DuPont Analysis should be used to access farm performance in this case.

B. Create a mathematical framework that demonstrates how a subsidy which decreases the business risk may increase financial risk. ( Use the risk balancing hypothesis.)

C. Based on your analysis from part A and B what is your recommendation to the state?