The City of Swimfield is building a new pool. The pool will cost $1.5 million to
ID: 2762199 • Letter: T
Question
The City of Swimfield is building a new pool. The pool will cost $1.5 million to construct in year one. The pool will open in year two and will need another capital investment of $150,000 in year eleven. Annual revenues are estimated at $250,000 per year. Annual expenses are estimated at $125,000 per year.
a.) All costs and benefits accrue at the end of each year. Using a 3.5% discount rate, calculate the NPV and BCR for the pool project over the next 21 years. What is the NPV for the pool?
b.) What is the BCR for the pool? Round your answer to two decimal places.
Round your answer to the nearest whole dollar.
Explanation / Answer
Discount rate= 3.50% Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Cash flow stream 0 -1500000 125000 125000 125000 125000 125000 125000 125000 125000 125000 -25000 125000 125000 125000 125000 125000 125000 125000 125000 125000 125000 Discounting factor 1 1.035 1.071225 1.108718 1.147523 1.187686 1.229255 1.272279 1.316809037 1.362897 1.410599 1.45997 1.511069 1.563956 1.618695 1.675349 1.733986 1.794676 1.857489 1.922501 1.989789 2.059431 Discounted cash flows project 0 -1449275 116688.8 112742.8 108930.3 105246.6 101687.6 98248.87 94926.44453 91716.37 88614.85 -17123.6 82722.91 79925.52 77222.72 74611.33 72088.24 69650.47 67295.14 65019.46 62820.74 60696.36 Sum of discounted future cashflows = 164457 =NPV Discounting factor = (1 + Required rate)^(CORRESPONDING PERIOD IN YEARS) Discounted Cashflow= Cash flow stream/discounting factor Discount rate= 3.50% Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Cost 0 1500000 125000 125000 125000 125000 125000 125000 125000 125000 125000 275000 125000 125000 125000 125000 125000 125000 125000 125000 125000 125000 Benefit 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 250000 Discounting factor 1 1.035 1.071225 1.108718 1.147523 1.187686 1.229255 1.272279 1.316809 1.362897 1.410599 1.45997 1.511069 1.563956 1.618695 1.675349 1.733986 1.794676 1.857489 1.922501 1.989789 2.059431 Discounted cost(2) 0 1449275 116688.8 112742.8 108930.3 105246.6 101687.6 98248.87 94926.44 91716.37 88614.85 188360.1 82722.91 79925.52 77222.72 74611.33 72088.24 69650.47 67295.14 65019.46 62820.74 60696.36 Discounted benefit(1) 0 233377.7 225485.7 217860.6 210493.3 203375.2 196497.7 189852.9 183432.7 177229.7 171236.4 165445.8 159851 154445.4 149222.7 144176.5 139300.9 134590.3 130038.9 125641.5 121392.7 BCR=sum(1)/sum(2)= 1.050316