The lake near Grassy Narrows is contaminated with mercury from an old paper mill, which has been...

90.2K

Verified Solution

Question

Finance

Thelake near Grassy Narrows is contaminated with mercury from an oldpaper mill, which has been shut down for many years. Some of thepeople who eat fish from the lake are showing signs of mercurypoisoning. Mercury is still leaking into the lake but no one knowsthe exact location of the leak. Marginal damages per year are givenby MD = 0.02E (t = 0, …) and emissions are E = 4000. The cost tolocate the leak and clean up the lake is $2 million (t = 0).

a) If r = 2% and you use a 100 year time frame (t = 0, …, 99)calculate the NPV to clean the lake.
b) If r = 8% and you use a 100 year time frame (t = 0, …, 99)calculate the NPV to clean the lake.
c) If r = 2% and you use a 50 year time frame (t = 0, …, 49)calculate the NPV to clean the lake.
d) If r = 8% and you use a 50 year time frame (t = 0, …, 49)calculate the NPV to clean the lake. e) Why are the present valuesfor the damages using the 50 year time frame (half the time) nothalf of the present values using the 100 year time frame?

Answer & Explanation Solved by verified expert

3.9 Ratings (602 Votes)

Please chedk if MD has been correctly reported by you in the question above as 002E I have a strong feeling that some formatting is lost while copying and pasting the question because the answers we are getting See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Thelake near Grassy Narrows is contaminated with mercury from an oldpaper mill, which has been shut down for many years. Some of thepeople who eat fish from the lake are showing signs of mercurypoisoning. Mercury is still leaking into the lake but no one knowsthe exact location of the leak. Marginal damages per year are givenby MD = 0.02E (t = 0, …) and emissions are E = 4000. The cost tolocate the leak and clean up the lake is $2 million (t = 0).a) If r = 2% and you use a 100 year time frame (t = 0, …, 99)calculate the NPV to clean the lake.b) If r = 8% and you use a 100 year time frame (t = 0, …, 99)calculate the NPV to clean the lake.c) If r = 2% and you use a 50 year time frame (t = 0, …, 49)calculate the NPV to clean the lake.d) If r = 8% and you use a 50 year time frame (t = 0, …, 49)calculate the NPV to clean the lake. e) Why are the present valuesfor the damages using the 50 year time frame (half the time) nothalf of the present values using the 100 year time frame?