This exercise considers a simplified cost-benefit analysis of whether a new housing de- velopment in the Thames Gateway in London should be required to install sprinklers in all dwellings. Use the spreadsheet Cost-Benefit-Sprinklers.xlsx to for this exercise. The analysis is based in part on parameters from a cost-benefit analysis published by the Department for Communities and Local Government in February 2010. The analysis esti- mates the costs and benefits of fitting a representative dwelling in this new development with sprinklers.

How sensitive do you expect the results of the analysis to be to the discount rate used? How would the benefit-cost ratio change if you assumed a discount rate of 1 rather than 3 percent?

Suppose the installation costs of the sprinklers are only 500 instead of 2200. Would this lift the benefit-cost ratio above 1?