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Number Crunching the Numbers

In: Business and Management

Submitted By margo227
Words 1079
Pages 5
Running head: CRUNCHING THE NUMBERS

Crunching the Numbers
PAD 505
Public Budgeting and Finance
Prepared by: Margaret Mack
Prepared for: Dr. Angela Parham
Strayer University
May, 13,2012

Margaret Mack
2339 Wavetree Lane NW
Acworth, Ga., 30101
May 13, 2012

There are two infrastructure projects to choose from and the city council wants to pick only one. The projects are independent so they could choose both if they like. I have done the calculations to see which is the most beneficial and would be a better decision. When making the decision we could look at the one with the lower payback but this is the least effective rule for making our decision. The Net present value (NPV) is the most effective rule for making our decision. Project A is a new housing development and project B is downtown parking facility.
In addressing infrastructure projects A and B the calculations show that project A has a payback 5.21 years for year 1, 4.18 years for year 2 and 3.53 years for year 3. Project B has a payback period of 2.44 years for year 1 and a payback period of 1.17 for year two. So in order to meet our required objective of 2.75 project B is the best choice because it falls under what our projected payback period of 2.75 years. However, as previously stated this is not a reliable rule in decision making.
Consequently, since project B has an internal rate of return that’s greater than our twelve percent requirement this makes it an attractive choice. Also this project has a higher NPV in the second year. Previously the city council has identified 2376 Laurel Plantation as the best location for a parking structure in downtown Atlanta. Therefore, this project should be undertaken as it will net the city great proceeds and also allow more room for tourists.
Justification: Seventy five percent occupancy is an established benchmark within the parking industry

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