1. The City of Victoria is considering building a new public swimming pool. Analysts have estimated the following impacts over the expected useful life of the pool (all in present values): Impact Funding grant from the provincial government Construction and maintenance costs Personnel costs Revenue from user fees Use value to recreational users of the pool Scrap value Present Value ($ millions) 2.2 12.5 8.2 10.8 19.7 0.8 When answering the following questions, assume that only residents of Victoria have standing (i.e. assume the municipality of Victoria is the referent group). Also, note that scrap value is a benefit received from reselling resources used during the project after the end of its useful life. A. The provincial funding grant is only available for this purpose. Should this grant be treated as cost, a benefit, or neither? Explain why. B. The construction and maintenance operations will have to be done by a Vancouver-based firm and should be treated as a cost. The operating personnel, however, are part of the referent group. How should we treat the payments to them? Explain your reasoning. C. Suppose that 16% of users come from outside of Victoria and that these users are charged a higher price, meaning that they pay 20% of the user fees collected at the pool. i. Calculate and report the size of the use benefits (you don't need to show work). ii. Calculate and report the amount of benefit generated from fee revenues (you don't need to show work). iii. Explain how you arrived at your answer. D. Calculate and report the net present value of the project (show your work). According to the NPV rule, should the municipal government proceed with this proposal? 1. The City of Victoria is considering building a new public swimming pool. Analysts have estimated the following impacts over the expected useful life of the pool (all in present values): Impact Funding grant from the provincial government Construction and maintenance costs Personnel costs Revenue from user fees Use value to recreational users of the pool Scrap value Present Value ($ millions) 2.2 12.5 8.2 10.8 19.7 0.8 When answering the following questions, assume that only residents of Victoria have standing (i.e. assume the municipality of Victoria is the referent group). Also, note that scrap value is a benefit received from reselling resources used during the project after the end of its useful life. A. The provincial funding grant is only available for this purpose. Should this grant be treated as cost, a benefit, or neither? Explain why. B. The construction and maintenance operations will have to be done by a Vancouver-based firm and should be treated as a cost. The operating personnel, however, are part of the referent group. How should we treat the payments to them? Explain your reasoning. C. Suppose that 16% of users come from outside of Victoria and that these users are charged a higher price, meaning that they pay 20% of the user fees collected at the pool. i. Calculate and report the size of the use benefits (you don't need to show work). ii. Calculate and report the amount of benefit generated from fee revenues (you don't need to show work). iii. Explain how you arrived at your answer. D. Calculate and report the net present value of the project (show your work). According to the NPV rule, should the municipal government proceed with this proposal
