Question
7. Revenues and expenditures tied to a development. A city is considering a residential development proposal, involving construction of 120 single family homes, built over
7. Revenues and expenditures tied to a development. A city is considering a residential development proposal, involving construction of 120 single family homes, built over a 4-year period. The city estimates at the project will generate roughly $5000 per unit in development fees (planning review, permits, inspections) in Year 1. It estimates that when fully sold, the project will generate roughly $895,000 in taxes (city share of sales and property tax) annually; during the 4-year construction period, it expects 10% of total tax revenue in the first year, 30% in the second, 60% in the third and 100% in the fourth.
The city estimates that the annual cost of munipal service to this development (public safety, infrastructure repair and maintenance, park maintenance, etc.) cost the city roughly $7,500 per unit, with 30% of that amount in the first year of development, 70% in each of the second and third years, and 100% in the fourth and final year of construction.
Assuming a 4% discount rate, what can the city expect to the the net present value of this revenue and expenditure stream over a 14-year period?
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