Question

The Environmental Protection Agency is considering a new regulatory policy that will cost $40 million this...

The Environmental Protection Agency is considering a new regulatory policy that will cost $40 million this year and generate $42 million in benefits next year. The EPA has determined that 4% is the appropriate discount rate in this case. Should this regulatory policy be implemented, and why or why not?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans. The regulatory policy should only be implemented if the present value of the benefits equal the present value of the cost. So, present value of the benefit at 4% interest rate,

B = 42 million/(1+0.04)

=> B = $40.3846 million

The present value of the benefits is greater than the cost of $40 million. Thus, it is beneficial to implement the new regulatory policy.

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Environmental Protection Agency (EPA) is deciding whether to undertake two different environmental protection programs. You...
The Environmental Protection Agency (EPA) is deciding whether to undertake two different environmental protection programs. You have been hired to advise the EPA and are presented with the following information: Program A: Spend $10 million today to reduce children’s exposure to lead in schools, which is expected to save 5 children from getting cancer in 9 years and 10 children from getting cancer in 10 years. Program B: Spend $5 million each year for the next 3 years to reduce...
New buses for a mass-transit agency cost $10 million and are expected to last for 10...
New buses for a mass-transit agency cost $10 million and are expected to last for 10 years with a $1 million salvage value. The buses cost $500,000 to operate and maintain each year. If the system is used for 594,914 trips per year, with the average cost to the rider of $1.50, but providing $4.00 in benefits, and the interest rate is 4% per year, the benefit-cost ratio using PW for the investment will be Correct answer is 0.90. Please...
QUESTION 6 A new computer system is expected to cost $40 million and generate annual savings...
QUESTION 6 A new computer system is expected to cost $40 million and generate annual savings of $12 million over the next five years. Should the bank invest in this project if the discount rate is 12 percent? Yes, because the net present value of the project is $3,257,314. No, because the net present value of the project is -$3,257,314. Yes, because the net present value of the project is $20 million. No, because the net present value of the...
Veridian Dynamics is considering the purchase of a new cloning machine, which will cost $390 million...
Veridian Dynamics is considering the purchase of a new cloning machine, which will cost $390 million plus an additional $10 million to ship and install. The new machine will replace the existing machine, which has zero book value and could be sold today for $40 million. The new machine will have a 4 year useful life and will be depreciated to zero using the straight line method. The machine will require $10 million worth of spare parts to be pruchased...
Amed Construction is considering investing in a new project that will cost $5 million and increase...
Amed Construction is considering investing in a new project that will cost $5 million and increase net income by 8%. This project will be completely funded by issuing new equity shares. Currently, the firm has 4 million shares of stock outstanding with a market price of $40 per share. The current earnings per share are $1.50. What will the earnings per share be if the project is implemented? ( Do not use the $ sign in your answer. If your...
5. The Army Corps of Engineers is considering two designs for flood protection along the Mississippi...
5. The Army Corps of Engineers is considering two designs for flood protection along the Mississippi River. Option R requires an investment of $3 million and $30,000 per year in maintenance costs. Benefits from flood prevention are estimated to be $500,000 per year. Option S would cost $5 million to build and $60,000 per year to maintain. Benefits from flood prevention would be $750,000 per year. Assume that either design would be maintained and operated indefinitely. For an interest rate...
Healthy Food Inc. is considering introducing a new line of dried flowers. The firm expects to...
Healthy Food Inc. is considering introducing a new line of dried flowers. The firm expects to be able to generate $ 4 million in revenue from this new line, each year for the next 10 years, Customers who come to buy the flowers are expected to buy the firm's traditional offerings (fresh fruit and baked goods) and it is anticipated that the annual revenue on these goods will increase as a result of these extra purchases from $14 million to...
1.  Big​ Steve's, makers of swizzle​ sticks, is considering the purchase of a new plastic stamping...
1.  Big​ Steve's, makers of swizzle​ sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of ​$95,000 and will generate net cash inflows of $19,000 per year for 9 years. a.  What is the​ project's NPV using a discount rate of 8 percent​? Should the project be​ accepted? Why or why​ not? b.  What is the​ project's NPV using a discount rate of 13 ​percent? Should the project be​ accepted? Why or...
Building a bridge costs $2,000,000,000. and takes 2 years, of this cost, $800 million would be...
Building a bridge costs $2,000,000,000. and takes 2 years, of this cost, $800 million would be spent in year 1, and $1.2 billion in year 2. The bridge yields no benefits during its construction. but starting in year 3, It generates $300 million in benefits a year and costs $100 million a year to maintain. The bridge will last forever. The discount rate is r=0.05. Is this bridge worth building? Please provide detail explanation ( not in handwriting form which...
Marcal Corporation is considering a project would cost $5.5 million today and generate positive cash flows...
Marcal Corporation is considering a project would cost $5.5 million today and generate positive cash flows of $3 million a year at the end of each of the next 4 years. The project's cost of capital is 11%. a. Calculate the project's NPV if the company proceeds now.. b. The company is fairly confident about its cash flow forecast, but expects to have better price information in 2 years. The company believes the cost would be $6.5 million in 2...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT