It has long been a contention of civic leaders that the ambiance of thelocal area's residential areas would be substantially enhanced if theywere provided sidewalks and curb-and-gutter drainage appurtenancesWithout question, the majority of neighborhoods would be moreattractive and the proposed enhancements would also increase theresidences market values. The increase in market value wouldsubsequently be accompanied by an increase in the taxable values ofresidential properties that are currently without these features. The localgovernment has, for some time now, required uniform street signage inall subdivisions and taken.action to install upgraded signs wherever theydid not presently exist. A review, conducted by the government'sPlanning and Development Review Department, of all subdivisionswithin the government's purview reports that adequate dedicated rights-of-way that exists to allow the construction of sidewalks withoutacquisition of additional land from homeowners; either by purchase orby eminent domain.following project data. The cost of the crew's year 1 annual salaries andbenefits are expected to conform to the following scheduleIndividual Cost Total CostS51,000PositionSupervisoMaintenance Worker II (5$38,500Note that salary &benefit costs can be expected to increaseapproximately 2.5% per yearThe current taxable value of the residential property without sidewalksand curb-and-gutter roadway drainage is approximately$12,000,000,000. These properties' taxable value has increased anaverage of 5% per year, over the previous 10 years. The addition of theproposed features is projected to increase both the market and taxablevalues of the properties being improved by an average of 2%. Thecurrent general fund millage rate for residential property is 7.2 mils. Theprojected growth in tax revenues should be expected to increase by1/10t of the total each fiscal yearIn order to provide sidewalks and curb-and-gutter roadway drainage, thePublic Works Department's Civil Engineers have recommended theestablishment of a dedicated construction team for the efficientaccomplishment of this project. A full-time construction project effort isprojected to take approximately 10 years to complete installation in theexisting neighborhoods. Development regulations have already beenrevised to require these features in all newly approved subdivisions andexpansions of existing subdivisions.The Public Works Engineers also estimate program operating costs formaterials, equipment maintenance, repairs, and fuel as followsProgram Roadway Equipment Removal &The accomplishment of this recommendation is expected to require theservices of a full-time, dedicated crew of six (6) field personnel: one (1)Crew Foreman and five (5) Maintenance Workers. The efforts of thisgroup will be the constant execution of a project iob-order from thePublic Works Department's current Road Inventory computersoftware's Roadway Features Report List. They will accomplish theirscheduled work using an automated concrete curb and sidewalk formingequipment package. The purchase price of this equipment is estimatedYear Materials Maintenance Surveving Fuel15,000350100,000110,000115,000120,000125,000125,000120,000120,000110,000100,00010.00010.000 35010.000 35010.00010.000 40012.000 40012.000 40012.00014.000 42514.000 4254002,00022,0002,000$210,000. The purchase price includes training of two (2) individualsin the operation and maintenance of the equipment. Sod removal andsurveying services are available in-house and are accounted for in the4255,000

Question
Asked Jan 24, 2019
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Solve the following problem using excel: The program is estimated to require a 10-year commitment to fully achieve the desired result. Analyze the following information using both the Net Present Value (NPV) method and the Internal Rate of Return (IRR) method.
(I have already worked and solved this problem, however as it is complex and contains a large number of values to be calculated, I want to be sure that I applied all appropriate concepts correctly.)
I have attached the directions and problem in a screenshot.

It has long been a contention of civic leaders that the ambiance of the
local area's residential areas would be substantially enhanced if they
were provided sidewalks and curb-and-gutter drainage appurtenances
Without question, the majority of neighborhoods would be more
attractive and the proposed enhancements would also increase the
residences market values. The increase in market value would
subsequently be accompanied by an increase in the taxable values of
residential properties that are currently without these features. The local
government has, for some time now, required uniform street signage in
all subdivisions and taken.action to install upgraded signs wherever they
did not presently exist. A review, conducted by the government's
Planning and Development Review Department, of all subdivisions
within the government's purview reports that adequate dedicated rights-
of-way that exists to allow the construction of sidewalks without
acquisition of additional land from homeowners; either by purchase or
by eminent domain.
following project data. The cost of the crew's year 1 annual salaries and
benefits are expected to conform to the following schedule
Individual Cost Total Cost
S51,000
Position
Superviso
Maintenance Worker II (5
$38,500
Note that salary &benefit costs can be expected to increase
approximately 2.5% per year
The current taxable value of the residential property without sidewalks
and curb-and-gutter roadway drainage is approximately
$12,000,000,000. These properties' taxable value has increased an
average of 5% per year, over the previous 10 years. The addition of the
proposed features is projected to increase both the market and taxable
values of the properties being improved by an average of 2%. The
current general fund millage rate for residential property is 7.2 mils. The
projected growth in tax revenues should be expected to increase by
1/10t of the total each fiscal year
In order to provide sidewalks and curb-and-gutter roadway drainage, the
Public Works Department's Civil Engineers have recommended the
establishment of a dedicated construction team for the efficient
accomplishment of this project. A full-time construction project effort is
projected to take approximately 10 years to complete installation in the
existing neighborhoods. Development regulations have already been
revised to require these features in all newly approved subdivisions and
expansions of existing subdivisions.
The Public Works Engineers also estimate program operating costs for
materials, equipment maintenance, repairs, and fuel as follows
Program Roadway Equipment Removal &
The accomplishment of this recommendation is expected to require the
services of a full-time, dedicated crew of six (6) field personnel: one (1)
Crew Foreman and five (5) Maintenance Workers. The efforts of this
group will be the constant execution of a project iob-order from the
Public Works Department's current Road Inventory computer
software's Roadway Features Report List. They will accomplish their
scheduled work using an automated concrete curb and sidewalk forming
equipment package. The purchase price of this equipment is estimated
Year Materials Maintenance Surveving Fuel
15,000
350
100,000
110,000
115,000
120,000
125,000
125,000
120,000
120,000
110,000
100,000
10.000
10.000 350
10.000 350
10.000
10.000 400
12.000 400
12.000 400
12.000
14.000 425
14.000 425
400
2,000
22,000
2,000
$210,000. The purchase price includes training of two (2) individuals
in the operation and maintenance of the equipment. Sod removal and
surveying services are available in-house and are accounted for in the
425
5,000
help_outline

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It has long been a contention of civic leaders that the ambiance of the local area's residential areas would be substantially enhanced if they were provided sidewalks and curb-and-gutter drainage appurtenances Without question, the majority of neighborhoods would be more attractive and the proposed enhancements would also increase the residences market values. The increase in market value would subsequently be accompanied by an increase in the taxable values of residential properties that are currently without these features. The local government has, for some time now, required uniform street signage in all subdivisions and taken.action to install upgraded signs wherever they did not presently exist. A review, conducted by the government's Planning and Development Review Department, of all subdivisions within the government's purview reports that adequate dedicated rights- of-way that exists to allow the construction of sidewalks without acquisition of additional land from homeowners; either by purchase or by eminent domain. following project data. The cost of the crew's year 1 annual salaries and benefits are expected to conform to the following schedule Individual Cost Total Cost S51,000 Position Superviso Maintenance Worker II (5 $38,500 Note that salary &benefit costs can be expected to increase approximately 2.5% per year The current taxable value of the residential property without sidewalks and curb-and-gutter roadway drainage is approximately $12,000,000,000. These properties' taxable value has increased an average of 5% per year, over the previous 10 years. The addition of the proposed features is projected to increase both the market and taxable values of the properties being improved by an average of 2%. The current general fund millage rate for residential property is 7.2 mils. The projected growth in tax revenues should be expected to increase by 1/10t of the total each fiscal year In order to provide sidewalks and curb-and-gutter roadway drainage, the Public Works Department's Civil Engineers have recommended the establishment of a dedicated construction team for the efficient accomplishment of this project. A full-time construction project effort is projected to take approximately 10 years to complete installation in the existing neighborhoods. Development regulations have already been revised to require these features in all newly approved subdivisions and expansions of existing subdivisions. The Public Works Engineers also estimate program operating costs for materials, equipment maintenance, repairs, and fuel as follows Program Roadway Equipment Removal & The accomplishment of this recommendation is expected to require the services of a full-time, dedicated crew of six (6) field personnel: one (1) Crew Foreman and five (5) Maintenance Workers. The efforts of this group will be the constant execution of a project iob-order from the Public Works Department's current Road Inventory computer software's Roadway Features Report List. They will accomplish their scheduled work using an automated concrete curb and sidewalk forming equipment package. The purchase price of this equipment is estimated Year Materials Maintenance Surveving Fuel 15,000 350 100,000 110,000 115,000 120,000 125,000 125,000 120,000 120,000 110,000 100,000 10.000 10.000 350 10.000 350 10.000 10.000 400 12.000 400 12.000 400 12.000 14.000 425 14.000 425 400 2,000 22,000 2,000 $210,000. The purchase price includes training of two (2) individuals in the operation and maintenance of the equipment. Sod removal and surveying services are available in-house and are accounted for in the 425 5,000

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Expert Answer

Step 1

Initial investment = purchase cost = 210,000

Annual benefit will be calculated in three steps:

  1. Incremental annual property taxes
  2. Annual salaries & benefits costs
  3. Annual program operating costs
     
Step 2

Let's handle them one by one:

Annual incremental property taxes:

Current taxable value = 12,000,000,000

Millage rate= 7.2 mils

1 mill = 1/1000

Hence, current annual property tax = 12,000,000,000 x 7.2 x 1/1000 = 86,400,000

Improvement in annual property tax in ordinary course = 5%

Increase due to addition of features = 2% 

And subsequent increase = 1/10 of the value of previous year

hence, incremental property taxes in year 1  = 86,400,000 x 5% x (1+2%) x 1/10 = $ 440,640

Hence incremental property tax in year 2 = 440,640 x (1 + g)

Hence incremental property tax in year 3 = 86,400 x (1 + g)2

Hence incremental property tax in year 3 = 86,400 x (1 + g)N-1

Please see the table below for the incremental property taxes for each of the year:

YearInitial investmentAnnual incremental property taxes
 IA
0  
1                440,640
2                484,704
3                533,174
4                586,492
5                645,141
6                709,655
7                780,621
8                858,683
9                944,551
10             1,039,006
Step 3

Let's now calculate annual salary and benefits costs.

Year 1 cost is 243,500 and the same is expected to increase every year by g = 2.5%

Hence, year 2 cost will be = 243,500 x (1+g) = 243,500 x (1 + 2.5%)

Year 3 cost will be = 243,500 x (1+2.5%) 2 and so on

Year N cost will be = 243,500 x (1+2.5%)N-1

Please see the table below for annual salary & benefit costs:

YearSalary & Benefit costs
N= 243,500 x (1 + g)N-1
1                  243,500
2                  249,588
3                  255,827
4                  262,223
5                  268,778
6       &nb...

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