The local council has been approached to set up a new industrial precinct of the edge of a suburb. A number of proposals have been put forward for the use of the land and the community has been approached as part of the consultation period to provide input. One proposal is for a large industrial fabrication plant to be given approval. Your job as a planner is to evaluate the overall merits of this project so that the council can make a decision. Some of the particulars are as follows: 300 people will be directly employed in the factory with an average salary of \(\$ 40000\) per person per annum; and another 100 people in the local economy will have contracts or trade with the factory valuing of average \(\$ 10000\) per annum of additional business. The revenues for the factory are expected to be \(\$ 28000000\) and costs of production excluding labour will be \(\$ 14000000\) per annum. The factory will take two years to construct and will cost a total of \(\$ 7000000\) in net present value terms. However, this is include \(\$ 3000000\) spent within the local community. The decision to provide planning approval is complicated by other considerations such as surrounding land cannot be used for purposes such as residential zoning, which devalues the land compared to other uses it may have by \(\$ 8000000\) in NPV terms. This also results in a loss of rates for the council by \(\$ 100000\) per annum. There is also some pollution impact which, from similar developments elsewhere, is expected to increase costs in the local hospital by \(\$ 200000\) per year.

a Determine the net present value if the required rate of return from the fabrication plant for the owners is ten per cent and, given the costs of establishing the plant, what actual rate of return they will receive on their investment.

b Determine the overall social benefit or cost of the project and discuss whether the council should approve the plan based on your evaluation.