A manufacturing company has proposed building a new plant in a region. The propo

Question

A manufacturing company has proposed building a new plant in a region. The proposal to the regional government contains the following information:

The region has a 60,000 person workforce with 10% unemployed.

The new plant will employ 1,000 people and it is projected that another 1,500 service support jobs will be created in the region due to the plant.

The estimated tax revenue increase to the region from the plant and the additional 2,500 employed is projected to be $ 10,000,000 per year.

Regional social service expenses are $5,000 per year for each unemployed worker.

Environmental concerns require the expenditure of $50,000,000 for site development and wetlands protection.

The plant emissions control system installed cost would be $40,000,000 and its annual operating cost is $5,000,000 per year.

The company has requested that during the first ten tears the annual costs of site development and emission control be covered by the regional government.

As a staff member for the regional government, please answer the following questions:

a) What would be the reduction in unemployment related costs per year?

b) Assuming 8% interest over 10 years, what would be the annualized cost of site development?

c) What would be the total annual cost of the control system?

d) Estimate the net economic impact of the proposed facility on the region in current dollars per year.

Explanation / Answer

(a) Regional social service expenses are $5,000 per year for each unemployed worker. A total of 2500 workers will get employed. So the reduction in exenses related to unemployment will be: $12,500,000 (that is, $5000 multiplied by 2500).

b) Use uniform series capital recovery factor.

Annualized cost of site development = $50,000,000(A/P, 8%, 10) = = $50,000,000 (0.1490) = $7,450,000

c) Annual cost of the control system = $40,000,000(A/P, 8%, 10) + $5,000,000
                                                          = $40,000,000(0.1490) + $5,000,000
                                                          = $10,960,000

d) Benefits per year = $10,000,000 + $12,500,000 = $22,500,000

Costs per year = $7,450,000 + $10,960,000 = $18,410,000

Net benefit = $22,500,000 - $18,410,000 = $4,090,000

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