Problem
A government department is trying to decide how to use a piece of land. One option is to build a community garden with an expected life of four years. Another is to build an education center with an expected life of 12 years. The community garden would cost $100,000 initially and yield net benefits of $40,000 at the end of each of the four years, starting from year one. The education center would cost $2 million to construct and yield net benefits of $270,000 at the end of each year, starting from year three. Each project is assumed to have zero salvage value at the end of its life. Using a real discount rate of 5 percent, which project should be recommended?