As the southern sun cleared the bush-clad hills of the central North Island of New Zealand, a lone bellbird echoed its poignant call over the clear waters of the Waitemari River. Part of the tranquil scene, an angler waded slowly through the water, rod whipping back and forth in the classic style of fly fishing, searching for the three-pound rainbow trout which inhabited deep pools along the river. Downstream, where a small tributary joined the main river, signs of excavation marked the erection of a local council signpost. WAITEMARI DISTRICT COUNCIL Under s. 107 of the Council's Water Management Plan, application has been made for a water right in respect of Rawhide Development Company for the discharge of effluent into the Four Mile tributary to the Waitemari River. This is a Category B application: Agricultural/Processing. Interested parties should make their submissions in writing to the Council's main offices by 3 p.m., 10 March 2000. By order W.D.C The land through which the Waitemari River drains is rich in natural resources. It is one of two remaining areas outside New Zealand's National Parks where the native swamp hen lives, and the river itself is utilised by a growing number of dedicated trout anglers. The area had been hard hit by the effects of a prolonged economic recession. Rationalisation in New Zealand's meat industry had seen many of the older and larger meat processing plants closed in favour of smaller, more flexible, modern plants. Recently, a local plant had closed, causing the loss of 100 jobs in a rural district already hard hit by unemployment. However, good news for the Waitemari District had arrived in the form of the Rawhide Development Company (RDC). RDC was a consortium led by three people formerly employed at senior levels in the leather industry. With New Zealand's leather exports rising annually, particularly in the high value-added area of finished leather, the consortium leaders had identified a growing demand for semi processed hides, prompting them to investigate the establishment of a tannery in this area. Although farmed since the previous century, the Waitemari District lacked the land qualities associated with successful dairying regions further north. Nevertheless, the district had a long history of beef production, and, by developing a tannery there, RDC hoped to utilise the increasing supply of hides from the area's beef industry. While the meat was now processed in a modern plant in another district, WAITEMARI DISTRICT COUNCIL Under s. 107 of the Council's Water Management Plan, application has been made for a water right in respect of Rawhide Development Company for the discharge of effluent into the Four Mile tributary to the Waitemari River. This is a Category B application: Agricultural/Processing. Interested parties should make their submissions in writing to the Council's main offices by 3 p.m., 10 March 2000. By order W.D.C. processing the hides in Waitemari District took advantage of a pool of local skilled labour and would provide regular employment for the area. The tannery would semi-process hides into the "wet blue" raw material used by finished leather tanneries. Using their industry contacts, RDC was confident of securing early contracts and expected to sell 400,000 hides a year (about 20% of the national annual cattle production). The tannery would cost an estimated $12 million to set up, and would generate 50 jobs. Initial market research suggested that purchase prices for unprocessed hides would range from $60 to $70 per hide. Semi-processed hides could be sold for around $100 per hide. The tannery would need to pump effluent containing process wastes and chemicals into the Waitemari River. Under section 15(1) of the Resource Management Act of 1991, "no person may discharge any contaminant or water into water unless the discharge is expressly allowed by a rule of a regional plan, a resource consent, or regulations." However, Waitemari District Council were understandably ecstatic at the prospect of long-term employment in the area, and RDC had already made a water right application to the Council under its Water Management Plan. One possibility was a water treatment plant to clean up the effluent. The treatment plant would cost $2 million and be expensive to run. However, it would also allow the tannery to recycle up to a third of its treatment chemicals, there by reducing purchases of necessary chemicals and reducing trade waste charges. This proposal had the support of the local branch of the New Zealand Flora and Fauna Society, which was concerned about the possible damage to the habitat of the native swamp hen if untreated discharge was pumped into the river system. The potential change to the river environment also had the local Anglers Association concerned. RDC had been negotiating with the Unlimited Funds Corporation (UFC) over financing for the project. You are part of a group representing RDC, which was hired to present the project to the finance company. Initial feedback from UFC had expressed concern with the potential water treatment plant investment, so you will need to consider the costs and benefits involved with the water treatment plant carefully in your analysis. Your task is to evaluate the tannery proposal from a capital investment perspective, develop a spreadsheet model to help in the evaluation, and prepare a brief report with a review of the problem and your recommendation of whether the tannery should proceed. You are expected to make your own assumptions about which items to include in the evaluation, and to make your own estimates of the various costs and benefits. You will be required to demonstrate your model and present your conclusion to UFC representative.

develop a spreadsheet-based model of the decision which utilises capital investment techniques; in particular, UFC is interested in the net present value (NPV) and the internal rate of return (IRR) of the project;