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 8 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 8 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. Using a real discount rate of 5 percent, which project offers larger net benefits?
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