Background: As the Director of Capital Financing for a medium-sized city in the U.S., you have received a proposal for expanding the capacity of the city's sewer and sewage treatment system to help alleviate storm water overflow and flooding problems afflicting approximately 525 residences in the southwest quadrant of the city, an area represented by the senior-most Council member with tenure of 18 years. It is estimated that installation of sewer mains and service lines to these residences will cost a total of $2.8 million, and expanding the city's current wastewater treatment facility will cost $300,000. Both are one- time expenditures with a useful life of 30 years. Assignment: Draft a memorandum to the city's Executive and Legislative leadership, providing analysis and recommendations, clearly and concisely addressing the questions below. Please add your spreadsheet analyses as an appendix. 1. What are the primary reasons you believe would drive a recommendation to approve such a project? Consider a full range of project justifications and explain why you chose each one. Justifications include, but are not limited to, public health and safety; political considerations; risk of system failure; life cycle replacement, etc. 2. Why would this project be part of the capital budget and not operating budget, and why debt- financing makes sense. Discuss any constraints that should be considered in any debt-financing. 3. How much should the bond issue be to provide enough net proceeds to pay for the capital project? Assume that the Gross Spread associated with a debt financing is equal to 2.5% percent of the capital improvements being financed. 4. What should the type of bond offering and issuance method be and why? 5. How much would the annual debt service be for a bond structured with equal annual debt service payments paid at the end of the year for 30 years? Interest rate is 4%. What would be the total amount of interest payable to bondholders over the entire 30 years of such bond issuance? (Use spreadsheet.) 6. What would be the total amount of interest payable to bondholders over the entire 30 years of the bond issuance if the bond were structured as level principal repayment? (Use spreadsheet.) 7. Recommended bond structure method: level principal or level debt service and why Background: As the Director of Capital Financing for a medium-sized city in the U.S., you have received a proposal for expanding the capacity of the city's sewer and sewage treatment system to help alleviate storm water overflow and flooding problems afflicting approximately 525 residences in the southwest quadrant of the city, an area represented by the senior-most Council member with tenure of 18 years. It is estimated that installation of sewer mains and service lines to these residences will cost a total of $2.8 million, and expanding the city's current wastewater treatment facility will cost $300,000. Both are one- time expenditures with a useful life of 30 years. Assignment: Draft a memorandum to the city's Executive and Legislative leadership, providing analysis and recommendations, clearly and concisely addressing the questions below. Please add your spreadsheet analyses as an appendix. 1. What are the primary reasons you believe would drive a recommendation to approve such a project? Consider a full range of project justifications and explain why you chose each one. Justifications include, but are not limited to, public health and safety; political considerations; risk of system failure; life cycle replacement, etc. 2. Why would this project be part of the capital budget and not operating budget, and why debt- financing makes sense. Discuss any constraints that should be considered in any debt-financing. 3. How much should the bond issue be to provide enough net proceeds to pay for the capital project? Assume that the Gross Spread associated with a debt financing is equal to 2.5% percent of the capital improvements being financed. 4. What should the type of bond offering and issuance method be and why? 5. How much would the annual debt service be for a bond structured with equal annual debt service payments paid at the end of the year for 30 years? Interest rate is 4%. What would be the total amount of interest payable to bondholders over the entire 30 years of such bond issuance? (Use spreadsheet.) 6. What would be the total amount of interest payable to bondholders over the entire 30 years of the bond issuance if the bond were structured as level principal repayment? (Use spreadsheet.) 7. Recommended bond structure method: level principal or level debt service and why