A state agency is contemplating giving a total of $5,000,000 in grants to various universities. These grants would be paid out in installments of $500,000 per year over a 10-year period.
The grants would enable low-skilled persons to be retrained for new jobs, with a resulting benefit of $5,000 per year in increased income for each of 1,000 persons in the regional labor force, over the next 10 years.
These state grants would enable the universities to obtain a total of $1 000000 in matching federal funds for their operations, thereby reducing by $1,000,000 the total amount of state funds which would normally be required by the universities.
However, the grants would require 10 persons to be added to the university staffs at an average annual salary of $20,000 each, which would have to be paid out of state funds.
The current annual interest rate is 10% on funds of this type. Is the retraining program an economical investment for the state, on a present-worth basis?
Compute both the present-worth BCR and the present-worth NBV. Does the answer change if the BCR and NBV are computed in terms of annualized costs?