A deadly wildfire in November 2018, named the Camp Fire, caused many deaths, destroyed
thousands of structures, and burned 150,000 acres. The fire led to a tragic loss of life, as well as
the near entire destruction of two communities, Paradise and Concow.
The utility PG&E was deemed to have responsibility for the ignition of the fire. This means that
those damaged by the fire have a legal claim to compensation from PG&E. (The size of potential
liabilities from this and other wildfires pushed the utility into bankruptcy.)
To assess the size of such compensation payments, as well as other penalties that might be
assessed by government agencies, courts need to decide on the value of the damages caused.
This exercise asks you to contemplate the valuation techniques discussed in our course with
respect to this case.

1. Before you read anything more about the Camp Fire, I want you to think about what
   the different costs of the fire were, and how big you’d expect each of them to be.
   (Imagine that you are hired as an economist by the government, which is prosecuting
   PG&E, and your job is to make sure that the government contemplates all possible costs
   that they might want to include.)
   a. Make a list of all the different costs that you can think of that you might want to
   add up to get a total cost. (3 points)
   b. Again, before you do any reading or research, ask yourself which of these costs
   are going to be the largest. Identify what you think the three biggest cost
   categories will be. List those three, and put down your guess as to what
   percentage of the total costs would be associated with each category. (2 points)
   c. After you have completed the items (a) and (b), read some background material
   on the Camp Fire (Wikipedia is fine; there is a Frontline documentary; there is
   extensive media coverage; and insurance company analysis of damages offers
   empirical estimates.) Then, write 1 or 2 sentences saying what surprised you
   about the size and components of damages. (1 point)
   Note on grading: we will not grade this question for correctness. If you complete the items
   above and demonstrate some effort, you will get full credit. But, if you take it seriously,
   including doing (a) and (b) before you do any background reading, you will learn much more
   from this exercise.
2. The most dramatic and tragic aspect of the fire was the loss of human life. In class we
   discussed using the Value of a Statistical Life to put a dollar value on risks to human life.
   The federal EPA has a suggested estimate of the VSL here that it recommends agencies
   use in valuation. https://www.epa.gov/environmental-economics/mortality-riskvaluation
   a. Find the EPA’s preferred estimate of the VSL; find the number of deaths reported as
   directly caused by the Camp Fire; and use those numbers to calculate an estimate of
   the value of lost life from the Camp Fire. Show your calculation. (1 point)
   (There may be some ambiguity about specific values, so we will award full score to
   things that are in a reasonable range.)
   b. Is this a good estimate of the cost to society from lives lost during the Camp Fire
   incident? Explain why or why not. (200 word limit) (4 points)
   (For example, you may wish to argue that the VSL is not the right concept. Or, you
   may wish to recommend tweaks to the EPA’s number. Or, you may wish to argue
   that this is exactly the relevant number.)
3. In recent years, the salience of wildfire risk has changed dramatically in California. That
   is, many people are suddenly more aware of and concerned about wildfire risk. This
   suggests the possibility of getting a hedonic estimate of individual concern about
   wildfire risk by looking at housing price changes.
   a. Suppose we wanted to follow the model of the Davis paper on cancer clusters
   discussed in class. Describe the four home price values that you would want to
   collect in order to perform an analogous hedonic estimate related to the change
   in perceived wildfire risk in Northern California. (That is, suppose we are going to
   get an estimate using the mean home price from four groups of homes; what
   would those four groups be in order to follow the model of the Davis paper?) (2
   points)
4. Another valuation method we discussed is analysis of defensive expenditures.
   a. What defensive expenditures might have been deployed in response to the
   increase in wildfire activities? List all that you can think of. (2 points)
   b. Suppose that you had a complete accounting of all expenditures every year for
   the last twenty years in Northern California in each of these categories. Would
   the change in expenditures over time represent a good estimate of the total cost
   of the increase in wildfires? Explain why or why not briefly. (50 word limit; this
   can be quite brief.) (2 points)
5. Finally, we have discussed contingent valuation and stated preferences more generally
   as a method of evaluating damages. This question asks you to take the Exxon Valdez
   case from class as a model and use it to consider how you would conduct a contingent
   valuation survey that estimate the total willingness to pay of all California residents to
   avoid a disaster similar to the Camp Fire. The class lecture describes three phases of a
   study.
   a. Describe how you would conduct phase 1 of a study for this disaster, following
   the model from class. (75 word limit) (2 points)
   b. Describe how you would conduct phase 2 of a study for this disaster, following
   the model from class. (75 word limit) (2 points)
   c. Describe how you would conduct phase 3 of a study for this disaster, following
   the model from class. (75 word limit) (2 points)
   d. Of the four main types of bias that we discussed in class, which are you most
   concerned would cause bias in this situation. Explain why briefly. (75 word limit)
   (2 points)

Sample Solution

The post The wildfire in November 2018, named the Camp Fire appeared first on homework handlers.

Pick any of the globally publicly listed companies ( NISSAN )compute the company’s overall
weighted average cost of capital (WACC) that can be used to evaluate a project that has a life of 10 yrs. Write
up your analysis (should not exceed 4 pages) adhering to the following steps:
An introductory paragraph briefly talking about your company and why you chose it.
Estimation of the risk-free rate (provide the value, source, date, as well as short explanation behind your
answer)
Estimation of the equity market risk premium (provide the value, source, as well as short explanation behind
your answer)
Estimation of beta (use the monthly stock prices of the last 5 years to estimate the beta, present the estimation
in a graph, and interpretation of what the beta of your company implies)
Computation of your estimated cost of common equity using CAPM (points 2,3,4 above). For comparison of
your estimated cost of common equity, compute the cost of common equity using the dividend discount model
as well, in this case show the estimation of the upcoming dividend and growth in dividends (provide the value,
source, for all your computations).
Estimation of cost of debt (provide the value as well as a short explanation behind that)
Estimation of the WACC (describing in detail how you got the target capital structure weights, including the
sources and dates of when the information was gathered).
Explain what the WACC means, how can you use it in decisions, and do you think that you got a reasonable
estimate.
Explain why a MNC company might need to use a different cost of capital to evaluate the projects of its foreign
subsidiaries rather than using the domestic parent’s cost of capital.

Sample Solution

The post Calculation of Cost of Capital for a Foreign Company (Nissan ) appeared first on homework handlers.