The state of glottamora has 100 million remaining in its

Reference no: EM13453819

The state of Glottamora has $100 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 $100 million and having an expected useful life of 20 years. Projected benefits accruing from this project are as follows:

YEARS

BENEFITS PER YEAR ($ MILLIONS)

1-5

6-20

The second alternative is to undertake a job retraining program, also costing $100 million and generating the following benefits:

YEARS

BENEFITS PER YEAR ($ MILLIONS)

1-5

$20

6-10

11-20

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.

What rate do you believe to be more appropriate?

Reference no: EM13453819

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