Question

King T'Challa of Wakanda wants to create ten youth centers in and around Oakland, California, to improve the living conditions of Black kids in the area. He is considering two options to go about this project: • Option 1 Build all ten centers now, at a cost of $250,000,000 • Option 2 Build four centers now for $100.000,000, three more after four years at a cost of $90,000,000, and three more eight years from now at a cost of $120,000,000 In either case, each youth center requires $150.000 (adjusted for inflation) to run every year once it is built. You can assume the investment for each youth center is paid in full at the beginning of the year and that operating costs are due at the end of every year starting with year one. If the average expected inflation is 2% and the interest rate is 9%, which option makes the most economic sense?

Answer 1