Question

The City of Goodtown Park District (GPD) is a semi-autonomous part of the municipal government and receives part of the city’s budget in order to provide recreation to residents. It is a non-profit entity and is allowed to maintain an endowment fund in order to support its activities.

The GPD received, in an inheritance, land valued at $18 million. There were no stipulations on the inheritance and the GPD can use the land, or sell it, to best meet its goals. The GPD wants to assess the feasibility of establishing a park on the property. The property has terrain suitable for camping, hiking, cross-country skiing, and biking trails. Studies have assessed the land’s potential as a park. A design is made for 25 campsites, and 8 miles of hiking, biking and cross-country skiing trails.

Revenue would come from 1) camping permits, 2) a lease agreement with a vending machine company, and 3) from voluntary contributions. There will be no fees to utilize the recreation trails. Analysis shows that the site would attract 2600 camping permits per year at $37 per site per night. On average each camping permit would be for three campers. A local vending machine operating company has leased a concession and space to sell water, snacks, camp food, supplies, firewood, and soft drinks to park visitors. Under the agreement the company pays for the operation and maintenance of the vending machines, including all energy costs, and pays the District $50,000 for the right to sell exclusively to the park visitors at generally competitive prices. Also a group of park supporters in the community have established the Friends of the Goodtown Park Club. They have pledged donations of $400,000 per year to sponsor this new park.

Further analysis shows that total annual park use would be 15,000 visitor days for hiking; 9,000 visitor days for biking; 4,000 visitor days for skiing, and 7,800 visitor overnights for camping. Recent analysis in the state has estimated the benefits of hiking at $26.00 per person day, biking at $29.00 per person day, skiing at $33 per person day, and camping at $40.00 per person overnight.

All of these analysis were completed by highly qualified interns at the State Parks Department and without a cost to the GPD. It is expected that expected annual inflation would be neutral toward the park and that all values can be equally adjusted for inflation without changing the conclusions of the economic or financial analysis.

The development of a park infrastructure including offices, maintenance facilities, campsites, toilets trails, parking lots, and amenities would amount to $5.6 million. This would also require the park to remain closed for the first year of construction. In order to finance the project the District would need to get a low interest 30 year loan from the State Bank at a 2.5% fixed interest rate (this implies that they would make 30 equal payments starting at the end of year the park is closed for construction) (HINT use the PMT function in Excel to determine the annual loan payments necessary to repay this loan). However state guidelines for the economic analysis of investment projects state that capital investments should be evaluated at a 30 year time frame with a discount rate of 2%. Operation and maintenance of the park would require the department to hire new staff and purchase new supplies at a cost of $250,000 annually, starting the second year. This maintenance is expected to be sufficient to maintain infrastructure throughout 30 years.

A. Your assignment is to complete this analysis by presenting two discounted cash flows for: 1) a financial analysis and 2) an economic analysis of this project. Present the respective Net Present Values in an EXCEL spreadsheet.

B. Please make any recommendation about more information that might be required to improve this analysis. And also make recommendations about how the Park District should proceed. Please note that Goodtown Park District might have other sources of income, including funding from the city government.

Answer 1

B. The analysis required more information like number of persons created additiinal expenditure to the park by breaking or damaging something in the park. Recommended instead of closing of the park will totally create negative impact to users.so partially construct at one side then move to another side with out disturbing the users. Or total construction has to be completed in a short period.    My recommendations to the city of good town park is along with the general recreational facilities, conduct any weekly programmespecially like games, yoga , meditational sessions with entrance fee. So it creates additional income.