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Homework answers / question archive / You received your Master's in Public Administration degree from Nova Southeastern University and became a policy analyst with the City of Boondocks
You received your Master's in Public Administration degree from Nova Southeastern University and became a policy analyst with the City of Boondocks. To enhance the recreational experience of citizens in your city, the city council wants to choose from the following four policy alternatives:
(1) Do Nothing
(2) Repair the Swimming Pool
(3) Build New Pool in a New Site
(4) Build New Pool on an Existing Site
Using the following data (Table1-4) for the four policy alternatives, calculate the NPV and BCR at a 5% discount rate and select the best policy alternative. Upload the full excel sheet or ms word doc file with all steps and a brief explanation of what alternative is best and why.
Note: Y0-Y5 stands for Year0 to Year5
Alternative - Do Nothing
Table1:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 250,000 |
$ 250,000 |
$ 250,000 |
$ 250,000 |
$ 250,000 |
Benefits |
0 |
$ 1,000,000 |
0 |
0 |
0 |
0 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
Alternative - Repair the Swimming Pool
Table2:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 1057,000 |
$ 32,000 |
$ 32,000 |
$ 32,000 |
$ 32,000 |
Benefits |
0 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
Alternative - Build New Pool at a New Site
Table3:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 1,080,000 |
$ 80,000 |
$ 80,000 |
$ 80,000 |
$ 80,000 |
Benefits |
0 |
$ 365,000 |
$ 365,000 |
$ 365,000 |
$ 365,000 |
$ 365,000 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
Alternative - Build New Pool at an Existing Site
Table4:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 1000,000 |
$ 55,000 |
$ 55,000 |
$ 55,000 |
$ 55,000 |
Benefits |
0 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
You received your Master's in Public Administration degree from Nova Southeastern University and became a policy analyst with the City of Boondocks. To enhance the recreational experience of citizens in your city, the city council wants to choose from the following four policy alternatives:
(1) Do Nothing
(2) Repair the Swimming Pool
(3) Build New Pool in a New Site
(4) Build New Pool on an Existing Site
Using the following data (Table1-4) for the four policy alternatives, calculate the NPV and BCR at a 5% discount rate and select the best policy alternative. Upload the full excel sheet or ms word doc file with all steps and a brief explanation of what alternative is best and why.
Note: Y0-Y5 stands for Year0 to Year5
Alternative - Do Nothing
Table1:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 250,000 |
$ 250,000 |
$ 250,000 |
$ 250,000 |
$ 250,000 |
Benefits |
0 |
$ 1,000,000 |
0 |
0 |
0 |
0 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
Alternative - Repair the Swimming Pool
Table2:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 1057,000 |
$ 32,000 |
$ 32,000 |
$ 32,000 |
$ 32,000 |
Benefits |
0 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
Alternative - Build New Pool at a New Site
Table3:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 1,080,000 |
$ 80,000 |
$ 80,000 |
$ 80,000 |
$ 80,000 |
Benefits |
0 |
$ 365,000 |
$ 365,000 |
$ 365,000 |
$ 365,000 |
$ 365,000 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
Alternative - Build New Pool at an Existing Site
Table4:
|
Y0 |
Y1 |
Y2 |
Y3 |
Y4 |
Y5 |
Costs |
0 |
$ 1000,000 |
$ 55,000 |
$ 55,000 |
$ 55,000 |
$ 55,000 |
Benefits |
0 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
$ 165,000 |
Discount Rate |
|
5% |
5% |
5% |
5% |
5% |
Discount Factor |
|
.9524 |
.9070 |
.8638 |
.8227 |
.7835 |
Step-by-step explanation
Alternative - Do Nothing | ||||||
Particulars | Y0 | Y1 | Y2 | Y3 | Y4 | Y5 |
Costs | 0 | 250,000 | 250,000 | 250,000 | 250,000 | 250,000 |
Benefits | 0 | 1,000,000 | 0 | 0 | 0 | 0 |
Discount Rate | 5% | 5% | 5% | 5% | 5% | |
Discount Factor | 0.9524 | 0.907 | 0.8638 | 0.8227 | 0.7835 | |
Net Cash Flows | 0 | 750,000 | -250,000 | -250,000 | -250,000 | -250,000 |
Present value of Cash Flows | 0 | 714,300 | -226,750 | -215,950 | -205,675 | -195,875 |
Net Present Value | -129,950 |
Alternative - Repair the Swimming Pool | ||||||
Particulars | Y0 | Y1 | Y2 | Y3 | Y4 | Y5 |
Costs | 0 | 1,057,000 | 32,000 | 32,000 | 32,000 | 32,000 |
Benefits | 0 | 165,000 | 165,000 | 165,000 | 165,000 | 165,000 |
Discount Rate | 5% | 5% | 5% | 5% | 5% | |
Discount Factor | 0.9524 | 0.907 | 0.8638 | 0.8227 | 0.7835 | |
Net Cash Flows | 0 | -892,000 | 133,000 | 133,000 | 133,000 | 133,000 |
Present value of Cash Flows | 0 | -849,541 | 120,631 | 114,885 | 109,419 | 104,206 |
Net Present Value | -400,400 |
Alternative - Build New Pool at a New Site | ||||||
Particulars | Y0 | Y1 | Y2 | Y3 | Y4 | Y5 |
Costs | 0 | 1,080,000 | 80,000 | 80,000 | 80,000 | 80,000 |
Benefits | 0 | 365,000 | 365,000 | 365,000 | 365,000 | 365,000 |
Discount Rate | 5% | 5% | 5% | 5% | 5% | |
Discount Factor | 0.9524 | 0.907 | 0.8638 | 0.8227 | 0.7835 | |
Net Cash Flows | 0 | -715,000 | 285,000 | 285,000 | 285,000 | 285,000 |
Present value of Cash Flows | 0 | -680,966 | 258,495 | 246,183 | 234,469.5 | 223,297.5 |
Net Present Value | 281,479 |
Alternative - Build New Pool at an Existing Site | ||||||
Particulars | Y0 | Y1 | Y2 | Y3 | Y4 | Y5 |
Costs | 0 | 1,000,000 | 55,000 | 55,000 | 55,000 | 55,000 |
Benefits | 0 | 165,000 | 165,000 | 165,000 | 165,000 | 165,000 |
Discount Rate | 5% | 5% | 5% | 5% | 5% | |
Discount Factor | 0.9524 | 0.907 | 0.8638 | 0.8227 | 0.7835 | |
Net Cash Flows | 0 | -835,000 | 110,000 | 110,000 | 110,000 | 110,000 |
Present value of Cash Flows | 0 | -795,254 | 99,770 | 95,018 | 90,497 | 86,185 |
Net Present Value | -423,784 |
Considering the four alternative, the only viable alternative, and the one that should be selected is Alternative 3 - Build a New Pool at a New Site. This is because this project has a positive NPV, meaning that it shall contribute positively to shareholder wealth in present value terms if considered, whereas all the other alternatives cause a deterioration in shareholder wealth in present value terms.