Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $100,000 aplece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government. a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $115,000 for sure. What is the opportunity cost of capital for this investment? Opportunity cost of capital b-1. Suppose instead that the sequestered carbon has to sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters' CFO learns that average rates of return from Investments on that exchange have been about 20%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? Opportunity cost of capital U.S. Treasuries with 1 year to maturity U.S. Treasuries with 2 year to maturity U.S. Treasuries with 3 year to maturity O Yes ON % b-2. Is the purchase of additional sequesters a worthwhile capital investment?

Pollution Busters Inc. is considering a purchase of 10 additional carbon sequesters for $100,000 aplece. The sequesters last for only 1 year before becoming saturated. Then the carbon is sold to the government. a. Suppose the government guarantees the price of carbon. At this price, the payoff after 1 year is $115,000 for sure. What is the opportunity cost of capital for this investment? Opportunity cost of capital b-1. Suppose instead that the sequestered carbon has to sold on the London Carbon Exchange. Carbon prices have been extremely volatile, but Pollution Busters' CFO learns that average rates of return from Investments on that exchange have been about 20%. She thinks this is a reasonable forecast for the future. What is the opportunity cost of capital in this case? Opportunity cost of capital U.S. Treasuries with 1 year to maturity U.S. Treasuries with 2 year to maturity U.S. Treasuries with 3 year to maturity O Yes ON % b-2. Is the purchase of additional sequesters a worthwhile capital investment?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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