Farmers in a valley are subject to occasional flooding when heavy rains cause the river to overflow. They have asked the federal government to build a dam upstream to prevent flooding. The construction cost of this project is to be repaid by the farm owners without interest over a period of years. The cost is $300 an acre. If a farm has 100 acres, a total of $30,000 is to be repaid. No payments at all are to be made for the first five years. Then, $1,000 is to be paid at the end of each year for 30 years to pay off the $30,000.
Is the farmer receiving a subsidy? Why? If the interest rate is 10 percent, what is the approximate capitalized value of the subsidy (if any)? Show all calculations.