Q479. Some old cars are being driven by people who take the attitude "if it ain't broke, don't fix it" and "sure, it might not be efficient or clean, but I can't afford to buy a new car." These cars use too much fuel and they pollute the air causing health problems in the population. Assume new cars are zero emission and so create zero health care costs. Each old car, on average, contributes to pollution and health care costs to the tune of $300 per year. We want to run a program to get 100 "junkers" off the road each year for the next three years by offering a $2000 rebate to people who swap a junker for a brand new zero emission vehicle. Working with a ten year time horizon and an initial discount rate of 3.5%, compute the NPV of the project. Then adjust the the subsidy to determine how large a subsidy we can give and still have the project worth doing. Then compute the IRR of the project at both the original amount and this new amount.


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