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Alternative A. Build a coal-powered generating facility at a cost of $20,000,000. Annual power sales are expected to be $1,000,000 per year. Annual operating and maintenance costs are $200,000 per year. A benefit of this alternative is that it is expected to attract new industry, worth $500,000 per year, to the region.

Alternative B. Build a hydroelectric generating facility. The capital investment, power sales, and operating costs are $30,000,000, $800,000, and $100,000 per year, respectively. Annual benefits of this alternative are as follows:

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A consulting engineer is currently evaluating 4 different methods for conserving water at a wast power generation station operated by the US park service. Each method has a life of 20 years. Estimates of the costs, benefits , dis benefits,and costsavings are shown.Using Net Benefits Cost evaluation method,calculate and report the B/C economic measure for each method and extensions of this method for competing alternatives using an interest rate of 10% per year. Based on your analysis identify which of the method if any should be recommended.

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You have been asked by an investor to value a local restaurant. In the most recent year, the restaurant earned a pretax operating income of $300,000. Income has grown an average of 4% annually during the last five years, and it is expected to continue growing at that rate into the foreseeable future. By introducing modern management methods, you believe the pretax operating-income growth rate can be increased to 6% beyond the second year and sustained at that rate through the foreseeable future. The investor is willing to pay a 10% premium to reflect the value of a control. The beta and debt-to-equity ratios for publicly traded firms in the restaurant industry are 2 and 1.5, respectively. The business target debt-to-equity ratio is 1, and its pretax cost of borrowing, based on its recent borrowing activities, is 7%. The business-specific risk for firms of this size is estimated to be 6%. The investor concludes that the specific risk of this business is less than other firms in this industry due to its sustained profit growth, low leverage, and high return on assets compared to similar restaurants in this geographic area. Moreover, per capita income in this region is expected to grow more rapidly than elsewhere in the country, adding to the growth prospects of the restaurant business. At an estimated 15%, the liquidity risk premium is believed to be relatively low due to the excellent reputation of the restaurant. Since the current chef and the staff are expected to remain if the business is sold, the quality of the restaurant is expected to be maintained. The ten-year Treasury bond rate is 5%, the equity risk premium is 5.5%, and the federal, state and local tax rate is 40%. The annual change in working capital is $20,000, and capital spending for maintenance exceeded depreciation in the prior year by $15,000. Both working capital and the excess of capital spending over depreciation are projected to grow at the same rate as operating income. What is the business worth?

Because sports facilities are not expected to generate additional net output in a metropolitan area and no systematic empirical analysis ever finds evidence that they do, sports facilities cannot be counted on to augment tax collections. Indeed, public expenditures occasioned by operating a sports facility generally exceed revenues generated by it. To assess the budgetary impact of a new facility, however, it is necessary to know the financing and lease terms. If the financing burden is large and falls primarily on public coffers and if the lease terms are concessionary to the team, then the public obligation for debt service, infrastructure maintenance, environmental remediation, incremental sanitation and security expense, probable cost overruns, and subsequent facility enhancement is likely to generate a substantial budgetary hole in the municipal, county and/or state accounts. Such budgetary gaps must be filled either with decreased government services or with higher taxes; either will produce a drag on the local economy. Unfortunately for host cities, the monopoly status of the major team sports leagues has enabled the teams to drive impressive bargains in negotiating financing and lease terms. Even as sports facilities have grown more and more expensive, in some cases costing over half a billion dollars, public contributions to construction costs have continued to average nearly 70 percent. Quirk and Fort (1992, pp. 170-171), after studying 25 facilities built between 1978 and 1992, concluded that the host cities provided on average a $7 million per year operating subsidy to the team. In none of the cases did the host city receive a positive net operating income from the facility. The perverse influence of the 1986 Tax Reform Act on lease terms described above and the escalating costs of recent facility construction suggest that the size of these subsidies has only grown since 1992. Promotional economic impact studies often claim that an additional positive economic stimulus is derived from the actual construction of the sports facility. The problem with this contention is that the funds to build the stadium or arena have an opportunity cost. If the construction is funded by the city, then the city must raise the money via higher taxes or reduced services. Spending on construction thereby causes lower spending by the government in other areas or lower disposable household income. If stimulating a local economy were so simple, every municipal government could guarantee full employment with a public works program that hired workers to dig holes in the ground and then hired other workers to fill the holes. Only in the case where some of the funding comes from state or federal coffers can the city expect to experience a net job gain from facility construction, and in this case, the gain comes at the expense of worker layoffs elsewhere in the state or country. The logical implications of both multiplier and budget impact analysis are consistent with the results of empirical studies that fail to detect any discernible effects on local economic growth associated with a sports facility or a team.

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1. They argue that the lack of economic benefits is due in part to the budgetary impact of the stadium construction. What do they mean? Explain your answer with sufficient detail to convince me you read that part of the article

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