A public-private partnership has been formed between a city, county, and construction/management company to attract a professional athletic team to the area. Assume you are the engineer with the company and are assisting with the benefit/cost analysis. The primary options are to construct a domed arena (DA) or a conventional stadium (CS), one of which will definitely be built. The DA option will cost $200 million to construct, have a useful life of 50 years, and require M&O costs of $360,000 the first year, increasing by $10,000 per year thereafter. In 25 years, a remodeling expenditure of $4,800,000 is predicted. The CS option will cost only $50 million to construct, have a useful life of 50 years, and require M&O costs of $175,000 the first year, increasing by $8000 per year. Periodic costs for repainting and resurfacing for the stadium are estimated at $100,000 every 10 years, except in year 50. Revenue from DA is expected to be greater than that from CS by $10,900,000 the first year, with amounts increasing by $200,000 per year through year 15. Thereafter, the extra revenue from the dome is expected to remain constant at $13.7 million per year. Assuming that both structures will have a salvage value of $5 million, use an interest rate of 8% per year and a B/C analysis to determine which structure should be built. Solve by hand or spreadsheet, as instructed.
A public-private partnership has been formed between
a city, county, and construction/management
company to attract a professional athletic
team to the area. Assume you are the engineer with
the company and are assisting with the benefit/cost
analysis. The primary options are to construct a
domed arena (DA) or a conventional stadium (CS),
one of which will definitely be built. The DA option
will cost $200 million to construct, have a useful
life of 50 years, and require M&O costs of
$360,000 the first year, increasing by $10,000 per
year thereafter. In 25 years, a remodeling expenditure
of $4,800,000 is predicted.
The CS option will cost only $50 million to construct,
have a useful life of 50 years, and require
M&O costs of $175,000 the first year, increasing
by $8000 per year. Periodic costs for repainting
and resurfacing for the stadium are estimated at
$100,000 every 10 years, except in year 50.
Revenue from DA is expected to be greater than
that from CS by $10,900,000 the first year, with
amounts increasing by $200,000 per year through
year 15. Thereafter, the extra revenue from the
dome is expected to remain constant at $13.7 million
per year. Assuming that both structures will have a
salvage value of $5 million, use an interest rate of
8% per year and a B/C analysis to determine which
structure should be built. Solve by hand or spreadsheet,
as instructed.
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