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Southern+Company+HW+1 - compliance decision in your final...

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UC - DAVIS Graduate School of Management Management 205 Brad M. Barber Financial Theory and Policy Spring 2010 Homework 1 Acid Rain: The Southern Company (A) Based on the information provided in the case, answer the following questions. In answering these questions, use clear and concise prose. Please explain calculations contained in tables so that they can be easily understood and replicated. 1. (5 points) What is the impact of the Clean Air Act Amendments of 1990 on the Southern Company’s Bowen Plant? 2. (5 points) What options does Southern Company have to comply with the new law? 3. (70 points) Complying with the Clean Air Act Amendments will be costly. There are three main options for complying with the Clean Air Act; analyze the incremental cost of each compliance option (i.e., exclude costs that are not incremental to the
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Unformatted text preview: compliance decision in your final analysis). A. Option 1 (Burn high-sulfur coal without scrubbers; Purchase allowances), B. Option 2 (Burn high-sulfur coal with scrubbers; Sell allowances), and C. Option 3 (Burn low-sulfur coal without scrubbers). 4. (5 points) What uncertainties does the company face that might cause it not to pursue the “least cost” solution? 5. (5 points) What should Southern Company do at the Bowen plant? 6. (5 points) Is it in the public’s interest to foster the development of a market for sulfur dioxide allowances? Why or why not? 7. (5 points) Would you advocate extending the concept of a tradable allowance to other pollutants?...
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