What rate do you believe to be more appropriate

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the state of glottamora has $100 million remaining in its budget for the current year. one alternative is to give glottamora 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:

year 1-5(benefits per yr-- $ millions) $ 0 year

6-20 (benefits per yr-- $ millions) $ 20 

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

years 1-5  (benefits per yr-- $ millions) $ 20

years 6-10  ( benefits per yr--$ millions) $ 14 years

11-20 ( benefits per yr--$millions) $ 4  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.

c. what rate do you believe to be more appropriate?

Reference no: EM13220168

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