The state of Glottamora has $300 million remaining in its budget for the current year. One alternative is to give Glottamorans a one-time tax rebate. Alternatively, two proposals have been made for state expenditures of these funds. The first proposed project is to Invest In a new power plant, costing $300 million and having an expected useful life of 20 years. Projected benents of the new power plant are as follows: Benefits per Year Years ($ Millions) 6 - 20 60 The second alternative is to undertake a job retraining program, also costing $100 million and generating the following benents: Benefits per Year Years ($ Millions) 1 - 5 6 - 10 42 11 - 20 12 The state Power Department argues that a 5 percent discount factor should be used In evaluating the projects because that is the government's borrowing rate. The Human Resources Department suggests using a 12 percent rate because that more nearly equals society's true opportunity rate. The present value Interest factor at the end of years from 0 - 20 for the two discount rates are given in the following table. Discount Rates 10 11 5% 1.000 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 12% 1.000 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0 0.404 0.361 0.322 0.287 0.257 Evaluate the projects using both the 5 percent and the 12 percent rates, Net Benefits at Discount Rate = 5% Net Benefits at Discount Rate = 12% Project ($ Millions) ($ Millions) Power Plant Job Retraining Program if you agree with the Power Department that the governmer the appropriate discount rate, which project will you choose? Job retraining program O Power plant