Suppose that Parker Dam, on Lake Havasu in Arizona has a leak, and will break in five years. If it breaks, the damage caused to local agriculture and loss of tourism will be $500. To avoid this, the government can spend $100 a year for two years to avoid the loss. Suppose the social discount rate is 25 percent. Calculate the net present value. Should the Bureau of Reclamation pursue this policy? Hint. We need to spend $100 now (t= 0) and 100 next year (t=1) to avoid the loss in time t=5