辅导 ECON2101 Cost Benefit Analysis Case Study – Sports Facilities辅导 数据结构语言程序

ECON2101 Cost Benefit Analysis Case Study – Sports Facilities

ALL SECTIONS DUE, 3pm 3rd June. Submitted online.

Instructions:

This assignment will consist of a group task worth 30% and an individual reflection worth 10%, for a total of 40% of your final grade. The case study can be done individually or as a group. Please note that this task is a significant amount of work for an individual, so groups are encouraged.

The  assignment  must  be  submitted  electronically  through  the  Online  Submission  links  in  the Assessment section of the Course Blackboard site.

.     Part 1  MUST be submitted as an Excel file (.xls or .xlsx) – only one submission per group is required.

.     Part 2 MUST be submitted as a Word file (.doc or docx) – only one submission per group is required.

.     Part 3 MUST be submitted as a Word file (.doc or .docx) – each student must submit their own reflective task for marking.

Further details to be announced on Blackboard.

Groups must be finalised by 5pm, 31 May. No changes are allowed after this date.

Remember that each value should be entered into the spreadsheet only once.

Marked out of 80 points (weighted to 40% of your final grade).

Background:

As local councils realise the growing importance of sustainable community spaces, there has been an increasing emphasis on providing more projects to support healthy activities of constituents in their areas. This includes making sure there are good facilities for sports and exercise, which helps keep people healthy and brings communities together.

A local council is considering the re-development of a sporting facility in one of their suburbs. The facility currently hosts a single cricket ground. The re-developed community space will add facilities including a soccer field, a cricket net, and a basketball court. To assist in evaluating the investment, the council has asked you to provide a cost-benefit analysis (CBA) to determine the feasibility of the project. As part of this analysis, the council would like you to examining the potential costs involved in building  and  maintaining  the  sports  facility,  as  well  as  the  expected  benefits  to  the  community. Additionally, the CBA should consider aspects that may align the proposed sports facility aligns with broader sustainability goals and regulations.

The sporting facility is expected to be operational by the start of 2025 and will operate for 20 years. The initial capital investment is scheduled for 2024, with additional purchases required in 2025. In your report to the council, you will need to discuss the results from the Investor, Social, and Disaggregated analyses. You will also need to consider any relevant literature or reports on the evaluation of the external benefits of sports participation as part of a program to support the local government and community.

Part 1- Spreadsheet Group Task – 30 marks (15%)

[Use the template Excel File on the BB website]

a)    Market and Investor Analysis

Construction requires a new basketball court, a cricket net, and a soccer field. The initial investment in these new facilities is expected to begin in 2024. Before the re-development, the council deems it necessary to seek legal advice. Legal experts will be consulted in relation to the plans for the project to  ensure  compliance  with  all  relevant  laws,  regulations,  and  contractual  obligations.  This  legal consultation is expected to cost $80,000.

To  support  the  re-development  of  the  site,  the  council  will  need  to  invest  in  critical  amenities. Specifically, the council will need to purchase two storage facilities at a cost of $45,000 each. A new restroom and change room facility will need to be built at a cost of $125,000. A new lighting system will need to be installed to support after hours participation at a cost of $179,000. The current carpark will not be sufficient to support the increased traffic to the site. There is expected a one-off parking lot re-development expense of $300,000.

To equip the upcoming sporting facilities, the council is set to acquire 25,200 square meters of turf, designated for the soccer field and cricket net. This procurement entails a rate of $12.50 per square meter. Further, the soccer field will need four goals posts to be purchased and installed at an expected cost of $750 per goal post. The council will also purchase a single cricket net and pitch for installation at an expected cost of $1,600.

The council plans to offer a range of products and services catering to the needs of athletes, spectators, and community members. As such it will need to purchase a demountable building to be used as a concession stand at a cost of $67,000.

Further to this, the council will need to purchase the following items in 2025:

-      One complete set of maintenance tools to assist in the upkeep of the site at a total cost of $3,000.

-      A worksite vehicle at the cost of $75,000.

-      Two ride-on lawn mowers at $5,600 each.

-      200 litres of fuel at $2.30 per litre to initially fuel the worksite vehicle and the lawn mowers.

-      150 kilograms of fertiliser at $19.00 per kilogram.

As part of the project, the council will need to invest in working capital in 2026 to assist in maintenance of the facilities. The working capital items have been provided in Table 1.

Table 1: Working Capital

In addition to the working capital, the council expects the following operating costs:

Table 2: Operating Costs

Further to the information above, it is expected that due to wear and tear 10% of the turf installed as part of the project will need to be replaced every year and the facility will have a yearly administration cost of $9,600.

The local council owns some of the land around the existing cricket ground. However, it will also need to lease additional land to hold temporary buildings for the life of the project. This land is not viable for other development uses and consequently the council can rent the land from the owner for $200 per hectare required. The council will rent a full 900 hectares every year from the owner. The land for this project will be rented from the owner for a 50-year period, at which point the council will take ownership of the land.

For the upkeep of the facility, the council’s expected wage expenses include:

-      One groundskeeper with a salary of $85,000 per year.

-      Two casual workers who are expected to work 30 days of the year (each), on average. Each day of casual labour is expected to cost $200 per worker.

Insurance premiums to cover liability, property damage, and other perceivable risks of the facility. 2.5% of total fixed investment, this includes the additional investment in 2025.

The expected revenue for this project consists of multiple aspects:

1)   The  concession  stand  brings  in  $2.50  for  every  dollar  spent  on  concession  inventories  on

average every year.

2)   The  facility  is expected to  be  hired out approximately  10 times a year by local community groups. The council expects to charge $5,000 for each rental hire.

3)   Community sports groups for organised sporting events are expected to occur every week. Approximately 500 participants use the fields to participate in organised sport events at the venue every week. Each participant is expected to pay a nominal fee of $5 per community event to support the upkeep of the sporting grounds and facilities.

The final revenue stream comes from major events. The council expects two major events per year – one for the basketball community and one for the soccer community. The expected revenues from these events are unknown. However, the council believes each year the basketball event will make $40,000 with a 25% likelihood, $70,000 with a 50% likelihood, and $100,000 with a 25% likelihood. The soccer event is expected to return either $180,000 or $300,000 with equal likelihood.

To finance the initial investment costs, the council will take out a loan of $500,000 at an interest rate of 4.5% per annum. The loan will have a 10-year term starting from 2025. Additionally, in 2027 the council will take out an offset loan of $100,000 as a contingency for any unexpected costs. This loan

will have a term of 4 years with repayments starting in 2028 and an interest rate of 9.5% per annum.

Both loans are from foreign banks.

For depreciation purposes, only the following assets are eligible to be depreciated:

Table 3: Depreciation

Note that all assets are depreciated starting in 2025 with the exception of the worksite vehicles. As worksite vehicles are purchased in 2025, depreciation must begin in 2026. Other assets purchased as part of the initial capital investment are not eligible for depreciation.

The tax rate on profits is 30%. Assume the salvage value for all investment costs is 10% of the initial fixed investment cost plus 10% of the additional investment cost (for capital purchased in year 2025). The re-development of the sporting facility will affect the capacity for operation for the first three years. Assume that the project is expected to reach 60% capacity in 2025, 75% capacity in 2026, and full capacity in 2027 for operating capacity.

Using a conversion factor of 10,000 and the information above, you have been asked to calculate the following:

i)    The IRR and NPV for the Market Analysis at a 5%, 10% and 15% real discount rate.

ii)   The IRR on equity and NPV for the business at a 5%, 10% and 15% real discount rate for the Investor Analysis.

b)   Social Analysis

You  now need to consider the social CBA. Due to taxes, duties, and subsidies we are  required to calculate the relevant shadow prices for the following:

Table 4: Taxes and Subsidies *remember that duties are only paid once.

Further to the information in Table 4, the council is receiving a subsidy from the State government for this project to support the development of sporting facilities prior to the 2032 Olympics. It is expected that the State government will provide a 20% subsidy for the Parking Lot Re-Development. The State government will also provide a subsidy of 25% for the repairs and maintenance to ensure the facilities are kept clean and usable.

It is also noted that land has an opportunity cost of $0 and the opportunity cost of labour is 60% of the market wage for casual workers. The groundskeeper is employed from elsewhere and should be costed at the market wage.

To  estimate the  external  benefits  of the  re-furbished  sporting  facility  you  consider  the following benefits:

1)   You  reference  a  recent  research  paper  indicates that for each large, organised community sport event held at the re-furbished facility is expected to increase the output of the local Food and Beverage industry by 11 cents and the output of local Accommodation industry by 15.5 cents per dollar received from the event revenue.

2)   You estimate that the refurbished sporting facility would encourage more visitors from outside the  local  council.  Therefore,  you  use  the  travel  cost  method  to  estimate  the  change  of consumer surplus and treat it as an external benefit.

Table 5: Visitor Information

The information in the above table was collected for a similar sporting field in a neighbouring council. Once the re-furbished facility for this project is up and running the travel cost is expected to decrease to $5 and would attract and would attract 150 more visitors per year from 2028. Assuming the travel cost function remains the same, it is possible to calculate the external benefit gained from the sporting facilities project.

i)            Building on the spreadsheet completed in a), calculate the NPV and IRR of the Social Cost Benefit Analysis using a 5%, 10% and 15% discount rate.

c)    Disaggregated Social Analysis

Now you want to disaggregate the results of the analysis. In this case you would like to evaluate who gains and who loses from the project. As part of the approach to disaggregation you are asked to exclude the private investor and the foreign bank from the Total Disaggregated CBA, and then identify the  remaining  stakeholders  with  standing.  The  remaining  stakeholders  include  landowners,  local labour, local communities, and the government. Using the template identify:

i)            The  NPV for the total disaggregated group of interest (without the investor and foreign bank) using a 5%, 10% and 15% discount rate.

ii)           The NPV for each remaining stakeholder group using a 5%, 10% and 15% discount rate.

d)   Sensitivity Analysis

Now as part of the cost-benefit analysis, the local council is interested in evaluating the assumptions and how sensitive or insensitive the results are to the best guess inputs. Specifically, the council would like to answer the following questions:

i)            There are two key inputs that are uncertain for the revenue expected to be generated by the re-developed facility – the rental income and the usage fees. As the council has some ability to set the price, they would like to see how the NPV changes for the investor analysis at the 5% discount rate. Allow the facility rental income to vary by $1000 from the best guess and the usage fee to vary by $1 from the best guess. Comment on the result.

ii)           The council would like to achieve an NPV of zero at a 5% discount rate as the investor to minimise running costs. Use the “Goal Seek” command to identify the minimum usage fee the facility could charge.

iii)          Given  the   current  State  government   initiatives  for  sporting  facilities,  the   council  is

considering asking for additional tax breaks from the Federal government to support the project. The local council would like to an IRR of 5.5% to the facility directly. What is the maximum tax on profits that would allow the facility to achieve this goal.

Part 2 – Written Report Group Task – 30 marks (15%)

Using your results from Part 1 of the case study, write a comprehensive report analysing the results of your CBA. In your report ensure you:

1)    Provide professional recommendations to the council on whether it should implement the re- development project. You are expected to research relevant literature of community sport.

2)   Outline the approach and results of sections a) to d) in Part 1. In your response you should investigate which variables should be subject to a partial sensitivity analysis in addition to the results of d).

3)    Identify considerations for your analysis or any alternative approaches that would improve on the current format of the CBA.

Word limit 1,500 words (+/- 10 %).

The rubric for this component of the case study can be found on the course website.

Part 3 – Reflective Assessment Individual Task – 20 marks (10%)

Critically reflect on the CBA task from the Case Study. In your answer,

1)   determine and establish the relevance and authenticity of the case study task as part of your development in a professional context.

2)    reflect on your individual challenges or challenges faced as part of a group.

Word limit 750 words.

The rubric for this component of the case study can be found on the course website.