The State of Glottamora has $100 million remaining in the budget for the current

Question

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

Explanation / Answer

Hi, If you like my answer rate me first...that way only I can earn points. Thanks I think 12% is the correct rate, because that more nearly equals society’s true opportunity rate. Government' target is benefit of the society, rather than self.

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