TASK: You are required to perform a project appraisal for a new football stadium. Option 2 requires a much greater investment but provides a much bigger stadium capable of holding larger crowds and provides several additional facilities which will allow for a higher ticket price to be charged. The recommended discount rate is 5%. Details of option 2 are presented below.

One-off costs Option 2 involves building a larger stadium with associated greater costs. The larger stadium will hold some 20,000 fans. All costs occur in year 0. The costs are as follows: Site purchase = $1.3 million Planning process = $60,000 Preparation (including foundations) = $1.95 million Prefabrication elements of the stands = $4.8 million Plant rental costs $60,000 per month (required for all 12 months) Estimated wages of 100 workers at cost $8 per hour, 38 hours per week for 47 weeks. Wages for site manager at $22 per hour, 40 hours per week for 47 weeks. Human resources cost for 15 new employees is estimated at $32,000

Ongoing costs Ongoing costs need to be considered for a 25 years period, starting in year 1. Ongoing costs are as follows: Wages for 30 employees at $14,000 each per annum. The growth rate of staff wages = 1.5% The maintenance cost is estimated at $250,000 per annum. Growth rate at 4% as stadium ages.

Benefits There are 23 home matches per annum. Benefits begin in year 1 and grow at a rate of 4% per annum. The extra facilities at the stadium mean a larger charge to 20,000 fans of $15 per game.

Exercises 1. Data Summary Table. Construct an excel spreadsheet containing the relevant information provided in Option 2 to perform a Cost Benefit Analysis. 2. Calculations of NPV and BCR. Using the data on costs and benefits provided for Option 2 what is the NPV and BCR associated with option 2? Assume that all impacts are realized at the end of each year.