Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. new city is considering building a recreation cent

New City is considering building a recreation center. The estimated construction cost is $12 million...

80.2K

Verified Solution

Question

Accounting

New City is considering building a recreation center. The estimated construction cost is $12 million with annual staffing and maintenance costs of $750,000 over the twenty-year life of the project. At the end of the life of the project, New City expects to be able to sell the land for $4 million, though the amount could be as low as $2 million and as high as $5 million. Analysts estimate the first-year benefits (accruing at the end of the year of the first year) to be $1.2 million. They expect the annual benefit to grow in real terms due to increases in population and income. Their prediction is a growth rate of 4 percent, but it could be as low as 1 percent and as high as 6 percent. Analysts estimate the real discount rate for New City to be 6 percent, though they acknowledge that it could be a percentage point higher or lower.

a) Calculate the present value of net benefits for the project using the analysts predictions.

b) Investigate the sensitivity of the present value of net benefits to alternative predictions within the ranges given by the analysts for at least one of the parameters. You are free to choose any method we studied for the sensitivity analysis.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of...

Finance
Q

Sketch the region enclosed by the given curves. y = 8 cos 8x,  y = 8 − 8...

Basic Math
Q

In the distillation apparatus, it is important that the bulb of the thermometer is placed below...

Chemistry
Q

12.64 A dumbbell has a mass m on either end of a rod of length 2a. The...

Physics
Q

What is the probability that a card drawn randomly from a standard deck of 52...

Basic Math
Q

72 y 2 N 2 3 DY 4 2 51 Which best represents the equation...

Algebra
Q

what is the answer in the blanks Unadjusted trial balance Dream Job Employment Services...

Accounting
Q

On June 30,2024 , Exploration Incorporated signs a lease requiring quarterly payments each year for...

Accounting
Q

Discuss the development and challenges of assurance practices. Discuss the role of assurance in...

Accounting
Q

Hi All, Kindly help me answer the question as below. Thanks a lot. SECTION A:...

Finance
Q

Transistor Group issued 20-year bonds 8 years ago at par, when the yield-to-maturity on the...

Finance
Q

Fast help needed, will thumbs up The Taylors agreed to...

Finance