Calculate MANUALLY WITHOUT USING EXCEL

Suppose a small city is considering building a set of public baseball diamonds on vacant land owned by the city. The Recreation Department presents two proposals. Proposal A is to build the entire park in the first year. Proposal B is to build half of the park in the first year and expand the park in the sixth year at a higher cost. Both proposals generate revenue from concession sales. Since the baseball diamonds would be located on city property, an opportunity cost of $10000 is included as the initial cost of both proposals. Assuming a discount rate of 3 percent and that both options have a life of eight years.

Proposal A:

Year

0 1 2 3 4 5 6 7 8

Benefits

$0 $0 $2500 $2500 $2500 $25000 $25000 $25000 $25000

Costs

$10000 $20000 $4000 $4000 $4000 $4000 $4000 $4000 $4000

Proposal B:

Year

0 1 2 3 4 5 6 7 8 Benefits

$0 $0 $5000 $5000 $5000 $5000 $15000 $15000 $15000

Costs

$10000 $15000 $2000 $2000 $2000 $2000 $1700 $4000 $4000

For each proposal, a)

Calculate MANUALLY WITHOUT USING EXCEL

: 1. Net present value (NPV)

2. Return on investment (ROI)

3. Payback period (PBP)