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A town’s recreation department is trying to decide how to use a piece of land. One...

A town’s recreation department is trying to decide how to use a piece of land. One option is to put up basketball courts with an expected life of eight years. Another is to install a swimming pool with an expected life of 24 years. The basketball courts would cost $180,000 to construct and yield net benefits of $40,000 at the end of each of the eight years. The swimming pool would cost $2.25 million to construct and yield net benefits of $170,000 at the end of each of the 24 years. Each project is assumed to have zero salvage value at the end of its life. Assume a real discount rate of 5 percent.

1. Use the roll-over method to calculate which project offers larger net benefits. Show your calculations and briefly explain the approach.

2. Use equivalent annual (net) benefit to calculate which project offers larger net benefits. Show you calculation and briefly explain the approach

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