TASK: You are required to perform a project appraisal for a new football stadium. The recommended discount rate is 5%. Details of option 1 are presented below.

One-off costs The site will be purchased for $1.2 million. The cost of planning is estimated at $55,000. Both the purchase of the land and the planning agreement must be in place before construction of the new stadium can begin. Construction is estimated to take one year. Construction costs estimated by the contractor, which occur in year 0, include preparation estimated at around $0.75 million. The prefabricated elements of the stands cost $2 million, plant rental costs $40,000 per month (required for all 11 months). Wages for 80 workers cost $8 per hour, and a site manager costs $22 per hour. Estimated staffing times are 40 hours per week all year (47 weeks) for the site manager, and 38 hours per week for 80 workers all year (47 weeks). The stadium will require around 10 new employees, who will perform a range of jobs (including refreshments serving, cleaning, etc.). There is an associated oneoff human resource cost associated with the advertising, interviewing, and training of these staff which is estimated at $22,000. This cost will also occur in year 0.

Ongoing costs Ongoing costs need to be considered for a 20 years period, starting in year 1. Ongoing costs are as follows: Staff wages of 25 employees with an annual salary of $15,000 each. The growth rate for all staff wages is 1.5%. Staff begins working in year 1. Maintenance cost is $150,000 per annum, incurred from year 1 onwards, and will grow at a rate of 4% per annum. Benefits The stadium holds 13,500 fans, tickets priced at $10 per match. There are 23 home matches per annum. Benefits begin in year 1 and grow at a rate of 4% per annum.

Exercises 1. Data Summary Table. Construct an excel spreadsheet containing the relevant information provided above to perform a Cost Benefit Analysis. 2. Calculations of NPV & BCR. a. Construct the costs and benefits that include the 20 year time period. b. Using the data on costs and benefits calculate the NPV and BCR associated with option 1 given a CBA period of twenty years. Assume that all impacts are realized at the end of each year. 3. Sensitivity Analysis. Construct a sensitivity chart relating to changes in the discount rate. Use a range of -2% to 8%.