This paper applies cost-benefit analysis techniques to evaluate a proposed rehabilitation project for the Massachusetts State National Guard Armory. Using a 4% discount rate over a 15-year project lifecycle, the paper calculates discount factors, annual present value maintenance costs, projected rental revenues, net present value (NPV), and the impact of a one-year construction delay. The analysis incorporates a delay-cost model to adjust total project costs and ultimately computes a benefit-cost ratio. Findings indicate that the projected benefits of rehabilitation exceed total costs, supporting the investment decision. The paper draws on established public finance and infrastructure evaluation frameworks to present a structured financial appraisal of a government capital project.
The paper demonstrates applied discounted cash flow analysis in a public sector context. By systematically computing present values for each year of the project lifecycle and then adjusting for delay costs, the author shows how standard financial appraisal tools — discount factors, NPV, and benefit-cost ratios — can be adapted to evaluate government infrastructure decisions rather than private investments.
The paper opens with a brief conceptual introduction to cost-benefit analysis, followed by a project overview establishing the scope and parameters. It then moves through three calculation-focused sections: discount factors and maintenance costs, discounted revenue benefits, and NPV with delay cost adjustments. The final section presents the benefit-cost ratio and a short conclusion affirming project viability. This linear, report-style structure mirrors professional infrastructure appraisal documents.
Cost-benefit analysis is a systematic process of comparing and calculating the costs and benefits of a project. Its purpose is to determine the justification of a project in order to support sound investment decisions. Cost-benefit analysis also assists in comparing projects based on their expected costs and benefits, and it determines whether the benefits of a project outweigh its costs. Discounting is a technique used to compare the present value of a project against the benefits received in different periods throughout a project's lifecycle (Richard, Zerbe, & Joseph, 2010).
The objective of this report is to use cost-benefit analysis to evaluate the proposed rehabilitation project for the National Guard Armory of the State of Massachusetts.
The State of Massachusetts is seeking to replace its National Guard Armory, which is rapidly approaching the end of its service life. According to the Department of Military Affairs, special maintenance will cost $275,000 annually, while rehabilitation of the facility would cost $4,000,000 and would extend the armory's service life by 15 years. Based on this information, this report calculates the discount factor for each year using a 4% discount rate over 15 years.
A discount factor represents the present worth of a future sum of money. The discount factor for each year of the project at a 4% interest rate is as follows:
Discount Factors at 4% (Years 0–15)
Year 0: 1.0000 | Year 1: 0.9615 | Year 2: 0.9246 | Year 3: 0.8890 | Year 4: 0.8548 | Year 5: 0.8219 | Year 6: 0.7903 | Year 7: 0.7599 | Year 8: 0.7307 | Year 9: 0.7026 | Year 10: 0.6756 | Year 11: 0.6496 | Year 12: 0.6246 | Year 13: 0.6006 | Year 14: 0.5775 | Year 15: 0.5553
Annual Present Value Cost of Special Maintenance (15 Years)
The annual cost of special maintenance is $275,000 per year for each of the 15 years. The total cost of special maintenance over 15 years is therefore:
Total Costs of Special Maintenance = $275,000 × 15 = $4,125,000
The rehabilitation of the facility costs $4,000,000. Thus, the overall costs of rehabilitation and maintenance are:
Total Costs of Special Maintenance (15 years): $4,125,000
Costs of Rehabilitation: $4,000,000
Total Costs Invested: $8,125,000
The report also estimates potential delays that might occur before completing the project. Perincherry and Wu (2012) developed a schedule delay cost model revealing that one year of delay in a new construction project is equivalent to losing an average of 37 cents on every dollar invested. Perincherry and Wu (2012) further found that six government construction projects were estimated to cost approximately $6.0 billion in 2011 — an average of $1 billion per project — and that due to project delays, estimated costs rose to $7.5 billion. A major factor driving cost increases from delays is the rising cost of materials due to inflation (Richard, Zerbe, & Joseph, 2010).
Since the National Guard Armory project is a new construction project, this report assumes that Massachusetts will lose 37 cents on every dollar invested if the project is delayed for one year. Accordingly, this report assumes a one-year delay and integrates the associated delay costs into the final cost-benefit analysis.
This section uses discounting to calculate the benefits that the State Government will derive from the project. Discounting translates the costs and benefits of a project into present-day values using the time value of money — the principle that money available today is worth more than the same amount in the future, because present money can be invested for profit. Discounting therefore provides an accurate way to assess the economic impact of a project.
To evaluate the costs and benefits of the National Guard Armory project, the report analyzed the demand for the armory over the last three years. The Massachusetts government derives revenues from leasing and renting the armory. Citizens and organizations benefit from the armory in the following ways:
— The National Guard Armory serves as a safe event location at competitive prices.
— It puts money back into the community.
— It generates funds to maintain the armories for future events.
There is consistently high demand for use of the National Guard Armory. Regular uses include graduations and receptions, classes and seminars, social and youth events, antique shows, group meetings, rummage sales, sports events, dog and cat shows, tournaments and competitions, charity events, and birthday parties and potlucks.
Given this high demand, the Massachusetts government realizes $1,400,000 in rental fee retained revenue annually. Historical budget data from the Commonwealth of Massachusetts confirms that revenue has been consistent across fiscal years (Commonwealth of Massachusetts, 2012):
FY2011 GAA: $1,400,000 | FY2012 GAA: $1,400,000 | FY2013 GAA: $1,400,000 | FY2013 Projected: $1,400,000 | FY2014 GAA: $1,400,000
Based on this historical and projected revenue, the State of Massachusetts is expected to realize approximately $1,400,000 per year over the 15-year project period. The projected total revenue over 15 years is:
Projected Revenue = $1,400,000 × 15 = $21,000,000
Thus, the future value (FV) of the project is $21,000,000.
The formula for discounting the project is:
PV = FV × [1 ÷ (1 + i)n]
To simplify the calculation, the report substitutes the discount factors calculated above to arrive at the present value (PV) for each year. The report also incorporates the assumed one-year project delay into the analysis. The detailed Net Present Value table for the National Guard Armory is as follows:
Net Present Value for National Guard Armory
Year 0: Initial Cost = ($8,125,000)
Year 1: $1,400,000 × 0.9615 = $1,346,100
Year 2: $1,400,000 × 0.9246 = $1,294,440
Year 3: $1,400,000 × 0.8890 = $1,244,600
Year 4: $1,400,000 × 0.8548 = $1,196,720
Year 5: $1,400,000 × 0.8219 = $1,150,660
Year 6: $1,400,000 × 0.7903 = $1,106,420
Year 7: $1,400,000 × 0.7599 = $1,063,860
Year 8: $1,400,000 × 0.7307 = $1,022,980
Year 9: $1,400,000 × 0.7026 = $983,640
Year 10: $1,400,000 × 0.6756 = $945,840
Year 11: $1,400,000 × 0.6496 = $909,440
Year 12: $1,400,000 × 0.6246 = $874,440
Year 13: $1,400,000 × 0.6006 = $840,840
Year 14: $1,400,000 × 0.5775 = $808,500
Year 15: $1,400,000 × 0.5553 = $777,420
Total Present Value: $15,565,900
Net Present Value (without delay) = $15,565,900 − $8,125,000 = $7,440,900
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