A county is considering using a piece of park land for one of two alternative recreation projects.
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Question:
A county is considering using a piece of park land for one of two alternative recreation projects. Project A would require construction costs of $170,000 (year 0) and generate net benefits of $40,000 per year for 8 years. (The benefits are realized at the ends of years 1 through 8). Project B would require construction costs of $2.2 million and generate net benefits of $185,000 per year for 24 years. (The benefits are realized at the ends of years 1 through 24). Each project is assumed to have zero salvage value at the end of its life. Using a real discount rate of 6 percent, (a) calculate net present value of one Project A and the net present value of one Project B. (b) Which project offers larger net benefits? Show your calculations.
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