COST BENEFIT ANALYSIS

A locally owned company is considering building a (N number) room resort on the Western coast of Viti Levu. You have been hired to document report on the viability of the project. So far you have the following information: The land for construction would cost $F(LC) million at an annual rental of $30,000. The building material will cost $(BM) million where 30% of the material will be imported (a tariff of 10% exists in building material). A total of 150 workers will be engaged to work on the site for a period of 2 year. Fifty of the workers that would be employed are presently employed elsewhere (Unemployment benefits do not exist in Fiji and the average wage rate in the industry is $300.00/week). The economic life of the resort is predicted at 60 years. One hundred and thirty five (135) workers are expected to be employed in the resort at approximately $300.00/week in a competitive market environment. Other costs of the business is expected to be $500,000 per year. The resort is likely to generate positive externalities (ie. business earnings) of around $1,000,000. The cost to upkeep the environment (from littering etc. is estimated at $50,000 per annum for the local authority, which employs locals). The resort boundary covers a coastline area of 1 kilometers, which is a fertile fishing ground for nearby villagers (estimate the cost to locals in terms of existing benefits). The resort is likely on average to have 65 percent occupancy rate around the year, where visitors on average spend $800 per person. The average stay period for visitors is expected at 7 days. The local social discount rate is around (r)% and a corporate tax on profits of 20% is levied on businesses in the tourism sector.

a) With these information available to you carry out an economic assessment of the project from the public point of view where the government supports the project with $(Inv) million investment on infrastructure. Consider reasonable estimates of costs, benefits and prices where you find the given information not sufficient. You may impute figures where information is lacking but those estimates must be reasonably justifiable.

Consider the 9 step approach at your disposal. This requires a spreadsheet analysis of the kind provided to you.

b)Report on the project from the government side including a sensitivity analysis of two possible scenarios:

i) A Covid-19 like situation

ii) A hurricane causing widespread damage to the resort