1) Set up an equation that will solve for the discount rate at which the benefits of groundwater regulations are equal to the cost

Due to the drought, farmers in California have substituted groundwater for curtailed surface water deliveries, and groundwater levels have fallen dramatically from the University of California, Davis have estimated that the costs of additional groundwater pumping increased by $590 million in 2015, up 75% from baseline levels. Let's suppose that the rought continues and that costs of groundwater pumping will increase exponentially over the next 5 years as groundwater levels further decline. However, new groundwater management actions could lead to "savings" in each of these years in the form of avoided costs of groundwater withdrawal Suppose that the state could implement a groundwater action plan, but to do so the state would need to set aside $5 billion in the initial year for administration costs and programs that would help compensate farmers for agricultural losses while they work to shift the crop mixes grown i the state. Savings from the new management are accrued in each year. *Note, 4 billion -4,000 M. Units have been given in millions of dollars Year Groundwater regulation Costs (administration and decreased farm pumping +nonmarket benefits of higher groundwater levels) revenues) Savings from new regulations (decreased costs of groundwat 0 $5000 M $700 M $1000 M 1500 M $2500 M $4000 M $9700 M 2 4 Totals $5000 M 1) Set up an equation (you do not need to solve it!) that would allow you to solve for the discount rate at which the benefits of groundwater regulations are equal to the cost PV