What rate do you believe to be more appropriate

Reference no: EM13221597

The State of Glottamora has $100 million remaining in the 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 proposal project is to invest in a new power plant, costing $100 million and have an expected useful life of 20 years. Projected benefits accruing from this project are as follows: years Benefits per year ($ millions) 1-5 $0 6-20 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 14 11-20 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.

What rate do you believe to be more appropriate?

Reference no: EM13221597

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