Q2 (10 points) Climate change is likely to harm water supply. Consider Scenario #1: 65% chance the affect will be mild and Scenario #2: 35% chance the affect will be severe. The City of Calgary is considering two projects A and B to mitigate water supply uncertainty. Project A would cost $50 million in year t=0 and would produce annual benefits of $10 million starting from year t=11 forever under either climate change scenario. Project B would cost $100 million in year t=0 and would produce annual benefits of $10 million starting from year t=11 forever under Scenario #1, but $20 million starting from year t=11 forever under Scenario #2. Determine which project, if any, the City should adopt by showing all calculations @ r=5%. (10 points).

1. Q2 (10 points) Climate change is likely to harm water supply. Consider Scenario #1: 65% chance
the affect will be mild and Scenario #2: 35% chance the affect will be severe. The City of Calgary
is considering two projects A and B to mitigate water supply uncertainty. Project A would cost $50
million in year t=0 and would produce annual benefits of $10 million starting from year t=11 forever
under either climate change scenario. Project B would cost $100 million in year t=0 and would
produce annual benefits of $10 million starting from year t=11 forever under Scenario #1, but $20
million starting from year t=11 forever under Scenario #2. Determine which project, if any, the City
should adopt by showing all calculations @ r=5%. (10 points)