Thus, there is a general high demand for the use of the National Guard Armory. Some of the methods that the National Guard armory is in the regular use are as follows:
Graduations/Receptions
Classes/Seminars
Social and Youth Events
Antique Shows
Group Meetings
Rummage Sales
Sports
Dog/Cat Shows
Tournaments and competitions
Charity Events
Birthday Parties and Potlucks
With high demand for the National Guard Armory, the government of Massachusetts realizes $1.4 Million of rental fee retained revenue yearly. The historical revenue generated from the National Guard Armory in Massachusetts is as follows:
(U.S. Dollars)
FY2011
GAA
FY2012
GAA
FY2013
GAA
FY2013
Projected
FY2014
GAA
Historical Budget Levels
1,400,000
1,400,000
1,400,000
1,400,000
1,400,000
(Commonwealth of Massachusetts, 2012).
Based on the historical and projected revenue of the National Guard Armory, the Massachusetts States government will realize approximate $1,400,000 yearly within 15 years.
Projected revenue of the project in 15 years based on the demand for the armory is as follows:
Projected revenue =1,400,000 x 15
Projected revenue =$21,000,000
Thus, the future value (FV) of the project is $21,000,000.
Based on the information collected on the costs and revenues associated with the proposed project, the report evaluates the viability of the project using discounting technique.
Formula for discounting the project is as follows:
PV = FV x [1 + (1 + i) n]
To simplify the calculation, the report substitutes the discount factor of the project in Table 1 to arrive at the present value (PV) of the project with the formula revealed as follows:
PV = FV x [Discount Factor]
The report assumes that there will be a project delay for one year and the report integrates the costs of delay in the calculation. The detailed of the Net Present Value for National Guard Armory table is revealed below:
Net Present Value for National Guard Armory
Time
Estimated Yearly
Returns
Discount Factor
@ 4%
Formula
Net Present Value
Year 0
0
($8,125,000)
Year 1
1400000
0.9615
PV = $1,400,000 x [0.9615 ]
1346100
Year 2
1400000
0.9246
PV = $1,400,000 x [0.9246 ]
1294440
Year 3
1400000
0.889
PV = $1,400,000 x [0.889]
1244600
Year 4
1400000
0.8548
PV = $1,400,000 x [0.8548 ]
1196720
Year 5
1400000
0.8219
PV = $1,400,000 x [0.8219 ]
1150660
Year 6
1400000
0.7903
PV = $1,400,000 x [0.7903]
1106420
Year 7
1400000
0.7599
PV = $1,400,000 x [0.7599 ]
1063860
Year 8
1400000
0.7307
PV =...
Thus, the costs of delay are as follows:
Costs of delay= 0.37 x $8,125,000
Costs of delay= $3,006,250
New Cost of the project =$8,125,000+$3,006,250
New Cost of the project =$11,131,250
Net Present value =$15,565,900-$11,131,250
Net Present value =$4,434,650
The costs of delay of the proposed project decline the Net Present value to $4,434,650.
Cost- Benefit Ratio for the Proposal
The report calculates the cost-benefit ratio by dividing the PV of the project by the costs and the calculation is presented below:
$15,565,900/$11,131,250
=0.40
Analysis of the benefit-costs of the proposal reveals that the benefit -costs ratio is 1: 0.40 revealing that the benefits of the project is 60% greater than the costs proposed for the project. (Campbell, and Brown, 2003).
Conclusion
Costs-benefit analysis is used to evaluate viability of a project towards improving, developing, and maintaining infrastructure based on the benefits anticipated from the projects. The report produces the NPV as the financial metrics of the proposed project to determine the viability of the project. The report uses the PV and NPV of the proposed project to carry out the costs-benefit analysis, and based on the findings of the evaluation, it is revealed that the benefits of the proposed investments outweigh the costs.
Reference
Campbell, H. And Brown, R. (2003). Cost-Benefit Analysis: Economic and Financial Appraisal Using Spreadsheets. Cambridge University Press
Commonwealth of Massachusetts (2013). Budget Detail: 8700-1140 - Armory Rental Fee Retained Revenue. State Government of Massachusetts.
Heyvaert, A.C. Mihevc, T. Thomas, J. et al.(2009). Evaluating an Approach for the Benefit- Cost Analysis of Project Alternatives. Department of the Policy and Environmental Science, University of California, Davis.
Perincherry, V. & Wu, F. (2012).Cost of Project Delays An Estimate of Foregone Benefits and Other Costs Related to Schedule Delays of Inland Waterway Projects. Decision Economics.
Richard, O. Zerbe, J. & Joseph C. (2010). Principles and Guidelines for Evaluating Federal
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