Case study:
Assuming the city of Ottawa is proposing to construct ten public swimming pools and cooling areas across the city for use, particularly during the hot summer months. Over the past four years, 8 children and 6 adults have died due to heat and several others have been admitted to the hospital for heat stroke. It is expected that these swimming pools and cooling areas will help reduce the impacts of the heat on the population. It is estimated that each swimming pool and cooling area will cost on average $1.5 million in material cost. The provincial government is planning to provide a $4 million subsidy for the project. A philanthropist is also donating $2 million for construction. Each swimming pool and cooling area will require 450 m2 of public land. It is expected that five full time employees will be required to construct each swimming pool and cooling area for a period of 6 months. The city is planning to charge $2 per children under 15 years old for each visit and $5 for each adult per visit. It is expected that there will be 2,000 visits per day to the swimming pool and cooling are during the summer.
Questions
1. Discussion of the present Value cost
2. Discussion of the present value benefits
3. Is the project feasible using NPV and B/C ration criteria?
4. With the following criteria, determine whether the project is economically feasible: Net present value Criteria, and Benefit cost ratio