Reference no: EM13742222

A county with 1M (M for million) population, 2% unemployment, and no in ation, voted to build a stadium and rent it to a professional baseball team. The team owner, who was not a county resident, was to pay $1M per year rent for use of the stadium and pay all maintenance costs. The owner would be responsible for the sale of admission tickets, parking, and concessions (sale of food and memorabilia) and would keep all resulting prots. A cost benet analysis of the project made the following estimates, treating the county as the community. Construction of the stadium, parking lots, and access roads would cost $300M, 60% of this to be spent on local value added (LVA) provided by county residents. The county would borrow $300M at the beginning of the project to pay for the construction and would repay the loan by raising its property tax. The land for the stadium site, valued at $15M, was already owned by the county. Two million tickets for stadium events would be sold per year, 70% of them to outsiders and the rest to locals (county residents), at an average ticket price of $35. For simplicity assume that every ticket would cost $35. Outsiders would spend an average of $20 on LVA per ticket they bought. This spending would be on local restaurant services, hotel rooms, and other goods and services provided by county residents. In answering the problems below, assume that the annual ticket sales and outsider spending listed above would continue throughout the 40 year lifetime of the stadium. Assume that the locals' marginal propensity to consume LVA was 30% and that their prot rate was 20%. Except in part i below, assume that all the numbers given above are correct. a. Write a formula for the net generated income coming directly from the construction part of the project. Estimate this net generated income, explaining each part of your formula and why you pick each of the numbers you use to get your estimate. Explain why the net new spending on LVA is not equal to the $180M in construction cost that is spent on LVA.