A municipality is deciding between 2 environmental projects. The first project will last 5 years. The costs
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A municipality is deciding between 2 environmental projects.
The first project will last 5 years. The costs of the project are fixed at $50,000 per year. Benefits will be $40,000 in year 1 and increase by $10,000 per year (in year 5 benefits will be $80,000).
The second project will last forever. The project will take 10 years to be built and it will cost $10,000 per year. Benefits will start flowing to the municipality in year 21 and will last forever. The per year benefit is $100,000.
If the municipality choses a project based on a benefit-cost analysis, which project will it select if the discount rate is 10% (rounded to the nearest dollar)?
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