The Ministry of Recreation has decided to consider a proposal to build a new regional park.A piece of land is available which can be purchased,after condemnation proceedings,for $1,000,000.A private developer has offered the owner of the land $2 million.The value of direct recreational benefits from the park is estimated at $175,000 per year for 25 years.In addition,indirect benefits of $12,500 per year for 25 years have been projected.Increased values in land surrounding the project will provide immediate,one-time pecuniary benefits to the land-owners of $1,000,000.
The direct cost to operate and maintain the park is estimated at $50,000 per year.The Ministry believes a 10% discount rate is appropriate to evaluate projects of this sort.Should the park be built? Justify your answer using cost benefit analysis.

Question

Quizplus · Accepted Answer

The Answer of The Ministry of Recreation has decided to consider a proposal to build a new regional park.A piece of land is available which can be purchased,after condemnation proceedings,for $1,000,000.A private developer has offered the owner of the land $2 million.The value of direct recreational benefits from the park is estimated at $175,000 per year for 25 years.In addition,indirect benefits of $12,500 per year for 25 years have been projected.Increased values in land surrounding the project will provide immediate,one-time pecuniary benefits to the land-owners of $1,000,000.
The direct cost to operate and maintain the park is estimated at $50,000 per year.The Ministry believes a 10% discount rate is appropriate to evaluate projects of this sort.Should the park be built? Justify your answer using cost benefit analysis.

The Ministry of Recreation Has Decided to Consider a Proposal