Question
Problem 3: Projects with Different Time Length (20 points) A towns recreation department is trying to decide how to use a piece of land. One
Problem 3: Projects with Different Time Length (20 points) A towns 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 5 years. Another is to install a swimming pool with an expected life of 20 years. The basketball court would cost $200,000 to construct and yield net benefits of $40,000 at the end of each year, for 5 years. The swimming pool would cost $3 million to construct and yield net benefits of $250,000 at the end of each year, for 20 years. Each project is assumed to have zer salvage value at the end of its life. Using a real discount rate of 5 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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