1. Determine the benefit-cost ratio (defined as the ratio of discounted benefits to costs) for the proposed fairgrounds development.

2. Based on this analysis, should the redevelopment program be undertaken?

3. List some of the secondary benefits and costs, as well as intangibles, associated with the project. (In calculating the benefits of the fairgrounds redevelopment program, increased employment opportunities were included.)

4. What assumption about employment in the Detroit area must be made in associating these benefits with the project?

5. Recalculate the benefit-cost ratio, assuming that these benefits are not included in the analysis. How does this result affect the desirability of the project? (In calculating the benefits of the fairgrounds redevelopment project, it was assumed that $1.5 million in additional annual revenue would be generated from the convention and hotel facility.)

6. What assumption is being made about the effects of this facility on other hotel and convention facilities? Is this assumption realistic?

7. Suppose that only $500,000 of the facility’s annual revenues can be attributed to “new” convention and hotel business. Recalculate the benefit-cost ratio under this assumption (also exclude employment benefits). How does this calculation affect the desirability of the project?

8. Suppose that the fairgrounds is unable to obtain a license to operate a dog-racing track. Assume that construction costs are reduced by 15 percent if a dog-racing track is not built. Recompute the benefit-cost ratio under this assumption (also exclude employment and convention facility benefits). How does this calculation affect the desirability of the proposed redevelopment project?

The Michigan State Fairgrounds is centrally located in the Detroit Standard Metropolitan Statistical Area (SMSA), which consists of Wayne, Oakland, and Macomb counties. The population within the SMSA numbered 4,197,931 persons in 2000, more than 47 percent of the state’s total population. More than 59 percent and 75 percent of the state’s population reside within 60 and 100 miles, respectively, of the fairgrounds site. The site is located near an efficient freeway system that connects many areas of the state. The State Fairgrounds is operated by the Agriculture Department and is in a deplorable state of disrepair. Costs have exceeded revenues by a substantial margin every year in the recent past.

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TYPE OF COST OR ANNUAL BENEFIT (+) OR COST (-) ($ MILLION) $-10.000 YEAR(S) BENEFIT Construction outlay Construction outlay Construction outlay -6.000 -4.000 Increased employment Increased employment Increased employment +4.560 +2.736 +1824 Coliseum 3–20 +0.500 State Fair attendance 3-20 +1.000 Convention and hotel facility Dog-racing track 3-20 +1.500 3-20 +1.000