The parks department is considering building a new pool. If the project is appro

Question

The parks department is considering building a new pool. If the project is approved, the pool will be constructed in 2016 for a total cost of $400,000 to be paid from the cash reserves of the department. The pool will open in 2017 and is expected to generate $97,000 in revenue each year. It will cost roughly $68,000 per year to operate. It is expected to last 20 years before it will require another major capital investment.   Using a 3% discount rate, calculate the Net Present Value (NPV) and Benefit Cost Ratio (BCR) for the project over the next 21 years.   Assume the construction costs occur at the end of year one and that all costs and benefits occur at the end of each year.

What is the NPV and BCR for the project?

Explanation / Answer

Year Cash Inflow Present Value (3%, 20 Yrs) Present Value 0 -400000 1 -400000.00 1 29000 0.9709 28156.10 2 29000 0.9426 27335.40 3 29000 0.9151 26537.90 4 29000 0.8885 25766.50 5 29000 0.8626 25015.40 6 29000 0.8375 24287.50 7 29000 0.8131 23579.90 8 29000 0.7894 22892.60 9 29000 0.7664 22225.60 10 29000 0.7441 21578.90 11 29000 0.7224 20949.60 12 29000 0.7014 20340.60 13 29000 0.681 19749.00 14 29000 0.6611 19171.90 15 29000 0.6419 18615.10 16 29000 0.6232 18072.80 17 29000 0.605 17545.00 18 29000 0.5874 17034.60 19 29000 0.5703 16538.70 20 29000 0.5537 16057.30 NPV 31450.40 Cash Inflow each year will be 97000-68000 Total Cost =(68000*20)+400000 1360000 1760000 Total Benefit =97000*20 1940000 Benefit to Cost Ratio =Total Benefit/Total Cost 1.10

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