Answer Happy

Question 4 4.1 Public sector projects prove difficult to evaluate in order to make economic decisions. Explain why this is the case and what method Government should use to make go or no-go decisions for public projects. (10%) 4.2 Glasgow City Council are considering building a skate park in the outskirts of Glasgow so that the facility can be used by locals and for sports tournaments can use the facility. The land is currently privately owned by a haulage firm which can be purchased for £150,000. Construction cost for the park are projected to be £300,000, and the additional annual maintenance cost for the facility is estimated to be £15,000. If the Council go ahead with building the facility, the local transport network will also be upgraded at a cost of £50,000. The annual operating costs are estimated to be £50,000 and operating staff will be required at a cost of £65,000. Annual benefits of the facility have been estimated as follows: • Tournament rentals = £250,000 • Customer rental charges = £50,000 • Convenience of updated transport links = £50,000 • Additional local economy revenue = £60,000 Using the Modified Benefit-Cost ratio with the AW determine whether the project should go ahead. The study period is 18 years and the MARR is 12% per year. [20%) 4.3 There have been some local protests about the new skate park as the local people feel that this will increase congestion and air pollution in the local area. The annual disbenefits to the local area caused by the inconvenience of congestion is estimated to be £75,000 and for the air pollution to be £40,000. Given this additional information apply conventional B-C ratio with AW to determine if the disbenefits affect the decision you made in question 3.2, treat the disbenefits as an additional cost. [20%]