Can someone please verify that I did this correctly- If I am completely off base then please assist (in my same format).

New City is considering building a recreation center. The estimated construction cost is $12 million with annual staffing and maintenance costs of $750,000 over the twenty year life of the project. At the end of the life of the project, New City expects to be able to sell the land for $4 million, though the amount could be as low as $2 million and as high as $5 million. Analysts estimate the first year benefits (accruing at the end of the year of the first year) to be $1.2 million. They expect the annual benefit to grow in real terms due to increases in population and income. Their prediction is a growth rate of 4 percent, but it could be as low as 1 percent and as high as 6 percent. Analysts estimate the real discount rate for New City to be 6 percent, though they acknowledge that it could be a percentage point higher or lower.

a. Calculate the present value of net benefits for the project using the analysts predictions. My answer: $11,264,673

Submit a copy of your Excel spreadsheet for problem 3 showing the present value of net benefits for the project (part a). For part b, you can vary the assumed values for the scrap value of land ($2 M to $5M), growth rate of benefits (0.01 to 0.06) and discount rate (0.05 to 0.07) as an exercise but submit your results for the best-case analysis and the worst-case analysis.

b. Investigate the sensitivity of the present value of net benefits to alternative predictions within the ranges given by the analysts.

My answers:

Best Case NPV $20,323,074

Worst Case NPV $625,708

Assumptions Annual Discount Rate 0.06 Annual Growth Rate of Benefits 0.04. Construction Cost $12,000,000 Annual Operations Cost $750,000 First Year Benefit $1,200,000 Scrap Value $4,000,000 Annual PV Annual Construction operational Annual Scrap Value NB NB Benefit ost ost Year 0 $12,000,000 S750.000 $0 -$12,750,000 -$11,985,000 1 so $750,000 $1,200,000 S0 $450,000 $423.000 $750.000 $1,248,000 2 so $0 $498,000 $468,120 $1,297,920 $0 $547,920 $515,045 4 so $750,000 $1,349,837 $0 $599,837 $563,847 5 so $750,000 $1,403,830 $0 $653,830 $614,600 ST50,000 $1,459,983 6 so $0 $709,983 $667,384 7 so ST50.000 $1,518,383 SO $768.383 $722.280 8 so S750.000 $1,579,118 $0 $829,118 $779,371 9 so $750,000 $1,642,283 $0 $892,283 $838746 10 so $750,000 $1,707,974 $957,974 $900,496 $750,000 $1,776,293 $0 $1,026,293 $964,716 $750,000 $1,847,345 13 so $750,000 $1,921,239 S0 $1,171,239 $1.100.964 ST50,000 $1,998,088 14 so $0 $1,248,088 $1,173,203 15 so S750.000 2,078,012 $0 $1,328,012 $1,248,331 16 so $750,000 $2,161,132 SO $1,411,132 $1.326464 17 so S750.000 $2,247,577 $0 $1,497,577 $1,407,723 18 so $750,000 $2,337,481 S0 $1.58 7,481 S1.492 232 19 so $750,000 $2,430,980 $0 $1,680,980 $1,580,121 20 $0 $750,000 $2,528,219 $4,000,000 $5,778,219 $5,431,526 Net Present Value $11,264,673