A government is offering a 10 year contract for off-shore drilling rights. The highest bonus bid is $5 million dollars. However, another firm offers to $800,000 per year for 10 years in production royalties.
a. What is the PV of the bonus bid if the discount rate is 5%?
b. What is the PV of the production royalties if the discount rate is 5%?
A local landfill currently charges $100 per half ton load of waste to dump. The marginal costs to the landfill of operating the dump are about $60 per half ton load of waste. A nearby incinerator charges $120 per half ton of waste, and it costs about $5 per half ton more to haul it to the incinerator.