Question
Could you help me with the following net benefits problem? Question A town's recreation department is trying to decide how to use a piece of
Could you help me with the following "net benefits" problem?
Question
A town's recreation department is trying to decide how to use a piece of land. One option is to put up basketball courts with an expected life of 20 years. Another is to install a swimming pool with an expected life of 30 years. The basketball court would cost $500,000 to construct and yield net benefits of $40,000 at the end of each year, for 20 years. The swimming pool would cost $3 million to construct and yield net benefits of $160,000 at the end of each year, for 30 years. Each project is assumed to have zero salvage value at the end of its life. Using a real discount rate of 3 percent, which project offers larger net benefits? Approach the problem using the Roll-Over and the Equivalent Annual Net Benefit methods.
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