Suppose that you are a solar developer. You would like to build a solar project that will last for two periods. This project would generate 50 MWh per period and produce electricity at a marginal cost of $2/MWh. It will cost $1000 to build, but you only have $400. Suppose that investors are especially eager to take on projects because of a $10/MWh tax credit the government is offering. The project would also bring in revenue by selling electricity at the prevailing market price of $37/MWh. Suppose that you receive two deals from two investors: Pay in period 1 % of profit in period 1 % of tax credit in period 1 % of profit in period 2 % of tax credit in period 2 Developer Tax Equity Investor 1 $900 $100 0 0 100 100 100 100 0 0 Pay in period 1 % of profit in period 1 % of tax credit in Developer $400 20 10 period 1 % of profit in period 2 % of tax credit in 90 period 2 80 Tax Equity Investor 2 $600 80 90 20 10 More details: Your firm and the tax equity investor use discount rates of 10% when evaluating potential investments. The government imposes a flat tax on profits at 30%. Assume the tax equity investors can monetize the entire tax credit. a) Which deal, if any, would you take? b) How much profit would the tax equity investor make with the package you choose?