Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Create a memo ( 2 pages or less ) with the calculations and tables requested by Mayor Goodyear. Please provide your Excel documents as an

Create a memo (2 pages or less) with the calculations and tables requested by Mayor Goodyear. Please provide your Excel documents as an Appendix. The project needs to be uploaded to Canvas by the deadline listed in Canvas.
Case Description: Waterloo is a small suburban city without many amenities. It is an embarrassment to some that the town doesnt even have a water park. (The kids in neighboring towns call it Waterless.) The Mayor of Waterloo, Mayor Goodyear, has decided to fix this situation and has tasked you with helping with the financing of the waterpark.
Early discussions with council were positive when the architects estimate of the cost of a reasonable pool came in at a modest $230,000. The council was supportive as long as some conditions were met. First, the financing of the pool had to be less than 10 years as they did not want to burden future generations with the pool and the Mayor said that was likely in 8 years. The council also did not want to spend too much on the pool and said that local governments were not paying very much on debt in 2013. So, they capped the interest they would pay at 2.5%. Finally, they are concerned about how much the total cost of building the pool, operating, and maintaining the pool would be.(Your estimates are that the pool will cost about $50,000 per year to run and maintain the pool in the summertime once it is built based upon the cost of similar pools in nearby communities.)
You called your municipal financial advisor (FA) and asked them to look into what the financing of a pool of $230,000 over eight years would look like. You assume that you will borrow the money on January 1,2014. You have asked that the schedule be slightly loaded toward the end of the eight years in terms of principal repayment.
Once you get back the repayment schedule, you are worried that the final cost on the bonds maturing in 2021 and 2022 might not be acceptable to council, but the mayor has pointed out that you need to account for the bonds that mature in 2015 and 2016 that have a much lower interest rate. You remember from a class that you took long ago some crazy professor talking about Net Interest Cost (NIC). You tell the mayor that if you calculate the NIC that you will hopefully see that the cost of the interest is below 2.5%.(Note here that this is just the offering statement. So, there is no premium or discount at this point.). She has agreed and asked you to do the calculations in a memo to her and council.
Due 1- Jan. Principal Amt. Interest rate %
2015 $25,0000.75%
2016 $25,0000.95%
2017 $30,0001.10%
2018 $30,0001.35%
2019 $30,0001.75%
2020 $30,0002.25%
2021 $30,0002.60%
2022 $30,0003.10%
Finally, Mayor Goodyear also wants you to calculate the yearly financing costs (use the rates given to you by your FA as the cost of financing the pool) plus the cost of running and maintaining the pool that you estimated at $50,000 per year. Report back to her in your memo on how much this is going to increase taxes for people with property worth $200,000, $300,000, and $400,000. You know from your citys most recent valuation that the amount of taxable property in the city is $200,000,000.(To do this, you will need to make some assumptions. For the assessment ratio for the homeowners calculation use the Kansas residential property assessment ratio of 11.5%. Also, assume that 1% of the property tax that you levy is uncollectable.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Multinational Business Finance

Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett

10th Edition

0201785676, 9780201785678

More Books

Students also viewed these Finance questions

Question

marketing plan on magnum nutraceuticals

Answered: 1 week ago