Suppose that a utility company is considering building a solar farm on outskirts of Scottsdale. This decision
Question:
Suppose that a utility company is considering building a solar farm on outskirts of Scottsdale. This decision will create economic profits 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 fuels—thus reducing the damages of pollution experienced by locals from $10,200 per year to $9,400 per year. Assume that these benefits are experienced from the first (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 fill the blanks in the table below (assuming you are working from a social perspective and counting all costs and benefits)
Time | Benefits | Costs | Net Benefits | Discounted Net Benefits |
---|---|---|---|---|
0 | ||||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 |
2.What is the net present value of this proposed project? If efficiency was the only objective for making the decision and we have fully accounted for all costs and benefits 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 efficiency of this project? (Yes/no and why?
Managing Business Ethics Making Ethical Decisions
ISBN: 9781506388595
1st Edition
Authors: Alfred A. Marcus, Timothy J. Hargrave