Those in favour of immediate reductions in fossil fuel consumption in favour of higher cost renewable...
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Those in favour of immediate reductions in fossil fuel consumption in favour of higher cost renewable energy to reduce global warming, which is expected to begin creating damages T years in the future, typically use a very low discount rate, i.e., close to zero. Those who are critical of immediate reductions in fossil fuel consumption typically use a discount rate closer to 3%. (a) Express this problem in terms of a net present value formula, where C is the cost today of higher energy sources and B is the damages forgone beginning T periods in the future. Express your discounting in terms of continuous compounding and assume that once the benefits begin occurring, they occur forever. Let r be the discount rate. Assume T is a fixed known date. (b) Show that if the costs of renewable energy are a one time cost of installation today, how an increase in the discount rate affects the net present value of immediate reductions. (c) Show how an increase in T, the number of years before benefits of clean energy take place, affects the net present value. Those in favour of immediate reductions in fossil fuel consumption in favour of higher cost renewable energy to reduce global warming, which is expected to begin creating damages T years in the future, typically use a very low discount rate, i.e., close to zero. Those who are critical of immediate reductions in fossil fuel consumption typically use a discount rate closer to 3%. (a) Express this problem in terms of a net present value formula, where C is the cost today of higher energy sources and B is the damages forgone beginning T periods in the future. Express your discounting in terms of continuous compounding and assume that once the benefits begin occurring, they occur forever. Let r be the discount rate. Assume T is a fixed known date. (b) Show that if the costs of renewable energy are a one time cost of installation today, how an increase in the discount rate affects the net present value of immediate reductions. (c) Show how an increase in T, the number of years before benefits of clean energy take place, affects the net present value.
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Related Book For
College Mathematics for Business Economics Life Sciences and Social Sciences
ISBN: 978-0321614001
12th edition
Authors: Raymond A. Barnett, Michael R. Ziegler, Karl E. Byleen
Posted Date:
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