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Suppose the college station city council is planning to expand Central Park in College Station, TX. They asked you to advise the city council on
Suppose the college station city council is planning to expand Central Park in College Station, TX. They asked you to advise the city council on whether it will be worth spending tax-payer dollars on park expansion. Suppose the discount rate (r) is 5% and the expected benefits and costs for the next 4 years are provided in the table below.
Year (t) | 0 | 1 | 2 | 3 | 4 |
Benefit | 0 | $50,000 | $200,000 | $300,000 | $500,000 |
Cost | $650,000 | $100,000 | $0 | $0 | $0 |
Net benefit (NB) |
- Calculate net benefits (NB) for each of the four years.
- What is the net present value (NPV) of the central park expansion project? Use the following formula
- Should the city council pursue the project? Why?
- Now, suppose the discount rate is 12%. Should the city council still pursue the project? Why?
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