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DEPARTMENT OF ECONOMICS
UNIVERSITY OF GHANALEGON
TOPIC: A COST AND BENEFIT ANALYSIS OF UPGRADING THE ACCRA ZOO
PRESENTED BY:
BOATENG FOSTER (10109723)BROWN JEMIMA (10109918)OKAI YANKSON JOSEPH (10113104)
MAY, 2006
1
Declaration and approval
We, the authors of this work, do hereby declare that with the exception of references to
other people’s work and data used, which have been duly acknowledged, the work
presented here was done by us as students of the Department of Economics, University of
Ghana, Legon, during the 2005/2006 academic year.
Also, this work has never been submitted in whole or in part for any degree from this or
any other university.
………………………………..
Boateng Foster
(10109723)
………………………………. .............................................
Brown Jemima Dr. D.K. Twerefou
(10109918) (Supervisor)
…………………………….
Okai Yankson Joseph
(10113104)
2
Acknowledgement
We wish to express our heartfelt gratitude to the following persons and groups for their
support and assistance:
Dr. D. K Twerefou, our supervisor, for his patience and wisdom in guiding this project;
The acting director of the Accra Zoo, Mr. Festus Courage Agya – yao, and the entire staff
of the zoo, especially Mr. Opoku for their immense contribution to our work.
Our gratitude also goes to our families and friends for their strong support,
encouragement and ideas.
Finally, our heartfelt thanks go to God Almighty for seeing us through and enabling us to
finish this project.
3
CONTENTS
Chapter Page
Chapter One (Introduction)…………………………………………………… 1
1.1 Background……………………………………………………………………..1
1.11 Historical Perspective………………………………………………………. 1
1.12 The Existing System…………………………………………………………1
1.2 Statement of Problem……………………………………………………………2
1.3 The Proposed System……………………………………………………………4
1.4 Study Objectives………………………………………………………………...5
1.5 Justification of the Project………………………………………………………6
1.6 Methodology……………………………………………………………………7
1.61 Source of Data ………………………………………………………………7
1.62 Investment Criteria…………………………………………………………..8
1.7 Structure of the Study………………………………………………………… 9
1.8 Expected Problems…………………………………………………………… 9
Chapter Two (Elements of Project Appraisal) ………………………………… 10
2.1 Introduction……………………………………………………………………..10
2.2 Technical Appraisal……………………………………………………………..10
2.21 Location…………………………………………………………………….. 10
2.22 Technology…………………………………………………………………..10
2.23 Equipment……………………………………………………………………11
2.24 Services………………………………………………………………………11
4
2.25 Project Schedule…………………………………………………………… 11
2.3 Institutional Appraisal………………………………………………………… 13
2.4 Economic Appraisal…………………………………………………………… 14
2.41 Employment…………………………………………………………………14
2.42 Revenue…………………………………………………………………….. 14
2.5 Financial Appraisal……………………………………………………………. 15
2.6 Social Appraisal……………………………………………………………….. 17
Chapter Three (Elements of Costs and Benefits) ………………………………18
3.1 Introduction……………………………………………………………………. 18
3.2 Analysis of Cost Structure of the Project ………………………………………19
3.3 Capital Outlays………………………………………………………………….
19
3.31 Redesigning of Cages………………………………………………………. 19
3.32 Renovation of Offices ………………………………………………………21
3.33 Renovation of Washrooms………………………………………………… 22
3.34 Provision of Entertainment Facilities……………………………………… 23
3.35 Provision of Resting Places………………………………………………… 23
3.36 Redesigning of Landscape………………………………………………… 24
3.37 Restocking the Zoo………………………………………………………… 24
3.38 Creation of Website………………………………………………………… 25
3.39 Provision of Vehicles……………………………………………………… 26
3.4 Maintenance and Operational Costs…………………………………………… 27
5
3.5 Analysis of Benefits of the Project…………………………………………… 29
3.6 Direct Tangible Benefits……………………………………………………… 29
3.61 Increased Revenue………………………………………………………… 29
3.62 Rent from Restaurant ………………………………………………………31
3.7 Direct Intangible Benefits……………………………………………………… 31
3.71 Opportunity for Research……………………………………………………31
3.72 Welfare of the Animals…………………………………………………… 32
3.8 Indirect Tangible Benefits………………………………………………………32
3.81 Brain Drain and Change of Profession………………………………………32
3.9 Indirect Intangible Benefits…………………………………………………… 33
3.91 Improvement in Standard of Living…………………………………………33
Chapter Four (Methodology and Analysis) ……………………………………. 35
4.1 Introduction …………………………………………………………………… 35
4.2 Methodology……………………………………………………………………35
4.3 Net Present Value……………………………………………………………… 35
4.31 Reasons for using the NPV………………………………………………… 35
4.32 Decision Rule for NPV…………………………………………………….. 37
4.33 Choice of Discount Rate…………………………………………………… 37
4.34 Formula for NPV…………………………………………………………… 37
4.35 Decision based on result……………………………………………………. 39
4.4 Benefit – Cost Ratio…………………………………………………………… 39
4.41 Decision Rule for Benefit – Cost Ratio…………………………………….. 39
6
4.42 Formula for Benefit – Cost Ratio……………………………………………
39
4.43 Calculation of Benefit – Cost Ratio………………………………………… 40
4.44 Decision based on result…………………………………………………… 40
4.5 Payback Period…………………………………………………………. ……..
40
4.51 Decision based on result…………………………………………………… 41
4.6 Sensitivity Analysis…………………………………………………………… 41
4.61 Using Discount Rate of 15.5%………………………………………………
42
4.62 Using Discount Rate of 17.5%………………………………………………
45
4.7 Final Analysis…………………………………………………………………. 48
Chapter Five (Conclusion and Recommendation) ………………………………49
5.1 Introduction……………………………………………………………………. 49
5.2 Summary………………………………………………………………………. 49
5.3 Limitations of the Study……………………………………………………….. 50
5.4 Investment Decision…………………………………………………………… 50
5.5 Recommendations……………………………………………………………. 51
5.6 Conclusion …………………………………………………………………… 52
5.7 References …………………………………………………………………… 53
7
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
1.11 HISTORICAL PERSPECTIVE
The Accra Zoo was established by the first president of Ghana, Dr. Kwame Nkrumah, in
1961. The idea for establishing the zoo was motivated after a prominent businessman
presented the former president with a few animals. Temporal structures were put up in
the Flagstaff House yard by Messrs Abbey and Welback. The idea for expansion came
later and in 1962, zoo experts from Israel and Kenya were invited to plan the site and
build it. The zoo was originally termed private, but was given public access in July, 1967.
The zoo was basically established for the purposes of conservation, education and
recreation.
1.12 EXISTING SYSTEM
Currently, the Accra Zoo is an urban zoo – a department under the Wildlife Division of
the Forestry Commission, Ministry of Lands, Forestry and Mines. It spans an area of
approximately 1.2 hectares and has over 50 species, including representatives of six
animal groups such as the primates, carnivores, reptiles, rodents, herbivores and birds.
8
The zoo is managed by a working force of 34 people – namely keepers, administrative
staff, technical men and veterinary officers, with only two of them being professionals.
The main source of funding is by government subvention. This is augmented by supports
through Friends of the National Zoo (FONZ) and a little direct assistance by some
individuals and organizations.
Since the establishment of the zoo, it has seen only two upgrading projects. The first was
the construction of the Education Center, with a wildlife reference library, which was
finished in 1999, and started functioning in 2000. The second was the creation of a center
for endangered primates – a project by the West African Primate Conservation Action
(WAPCA). This was inaugurated in April, 2005.
1.2 STATEMENT OF PROBLEM
The zoo currently spans an area of 1.2 hectares, but this is woefully inadequate to
accommodate the expansion project the zoo has in mind to undertake.
The cages the animals occupy are archaic, obsolete and totally uninhabitable. In some
cases, it has led to the death of the animal who may need more room to live comfortably.
Investigation confirmed that the suspected cause of the death of the last elephant was the
9
improper cage design. Coupled with this is the fact that most of the cages are in a very
poor state, with rusted metal, iron bars that are bending and paint peeling off.
Although the zoo has representatives of the six animal groupings- primates, carnivores,
reptiles, rodents, herbivores and birds, their numbers are very small. There are also many
other kinds of animals that people expect to see at the zoo. However, most visitors leave
the zoo with disappointment because their expectations are not met. These people
invariably do not return to the zoo and also rob the zoo of potential visitors by way of
negative publicity. To further complicate matters, the zoo has difficulty in maintaining
the few animals they have because the cost of feeding is just too high.
The size of the staff managing the zoo is totally insufficient in comparison with its size.
The zoo has a total staff strength of 34 workers, made up of 2 skilled/ professionals and
32 unskilled workers. Out of the 32 unskilled workers, 2 are currently on leave, 2 are on
retirement and 5 people have vacated their posts. This has led to increasing workload for
the workers, with a person managing a job for three people. The number of workers
continues to diminish daily. This is partly due to the very low salaries these workers
receive. This is not enough to compensate for the unfavorable working conditions, not to
mention the risk involved. The workers do not even have a first aid box at their disposal.
This is a very serious situation considering the fact that workers stand a very high chance
of being attacked by the animals they care for.
10
Both administrative and non – administrative staffs lack the needed facilities to enhance
the quality of their work. Offices are insufficient and in need of renovation. The
Education Center is well equipped, but other facilities are woefully inadequate. The zoo
lacks a field, i.e. departments for the various animal groups, where workers can keep
records of the animals they care for. The veterinary clinic also needs a little renovation.
The administrative offices cannot even boast of a single computer. The one currently in
use is for the WAPCA project.
There is no efficient transportation system to pick up workers from home and drop them
off at work and vice versa, making it difficult for workers to get to work on time,
especially those living as far as Kasoa. The zoo also has only one battered pick- up,
which is on the verge of collapse. This is inadequate to cater for the emergencies and
various errands that come up.
The facilities for visitors are in a very poor condition. This is especially so with regards
to the toilet facilities. Toilet seats, wall tiles and hand wash basins are all cracked and in
need of replacement. In addition to this, the facilities are not kept in a clean and hygienic
condition and are most unusable for visitors. These visitors to the zoo do not have a
reception area. There is no designated place for workers/staff to assist visitors with their
enquiries.
Information about the zoo is not readily available. In this era of information technology
advancement, the zoo is lagging far behind because it does not have a website. All
11
information about the zoo must be obtained directly from that place after a long and
bureaucratic process. Prospective tourists/foreigners are totally cut off because there is no
way they can get access to any information about the zoo.
1.3 THE PROPOSED SYSTEM
This project proposes the upgrading of the Accra Zoo to an ultra- modern zoological
garden, capable of meeting international standards. This upgrading would entail the
restructuring of the cages in such a way as to maximize the limited land size, and an
attempt to reproduce the natural habitat of the animals in conformity with international
standards. In addition, the proposed system would see to the restocking of the zoo in
order to meet visitors' expectations. Both local and more exotic species would be brought
in to fill the newly designed cages.
Basically, restocking would require more hands for the upkeep of the animals. Both
skilled and unskilled workers would be employed to meet the demands of the expanded
zoo. This would involve providing attractive remuneration to entice and maintain
workers.
The proposed system would house a renovated clinic and refurbished offices that would
have basic equipment like air- conditioners, computers with Internet connection, as well
as modern medical equipment for the clinic. The upgraded zoo would also have a newly
12
established field and renovated toilet facilities for both workers and visitors. In addition
to this, a proper and efficient transportation system would be put in place to reduce the
hustle and bustle the workers go through in commuting to and from work.
Finally, the proposed zoological garden would have a website in order to make
information about the zoo readily available to the public, both nationally and
internationally. This would also serve as a means of publicity.
1.4 STUDY OBJECTIVES
The main objective of this study is to basically assess the viability of upgrading the Accra
Zoo. Specifically, the study seeks to conduct a Cost – Benefit Analysis of the project to
ascertain its viability by:
· Undertaking an appraisal of the project.
· Analyzing the economic and social prospects of the project by collecting data on the
views of the zoo workers and the general public using interviews as the main survey
method.
· Analyzing the results and value policy recommendations
1.5 JUSTIFICATION OF THE PROJECT
13
The main objective of the Accra zoo is to be a unit of excellence in conservation,
education, and recreation. Our project proved necessary after a considerable study of the
zoo revealed that its set objectives have not been fully met since its establishment. This
study is important, therefore, to bring to light the deplorable nature of the Accra Zoo and
to analyze the viability of upgrading it in order for it to meet its objectives.
A study of this kind is long overdue, primarily because the Accra Zoo lags behind its
western counterparts in modern modes of service delivery. This situation should not be
allowed to persist for too long. A timely cost – benefit analysis should give a good idea of
the cost of redressing this imbalance.
With tourism as a major source of foreign exchange, the Accra Zoo lacks the required
facilities to meet the demands of tourists/ the public, thereby, falling short of their
expected contribution. This study is necessary to create an avenue for the zoo to generate
more income and raise its contribution to national development.
Furthermore, the study will try to establish the link between the conditions of work (in
this case, the environment of work and the materials, tools and equipment to work with
other than salaries and benefits), job satisfaction and efficiency. By so doing, this study
will try to establish the link between the small and inadequate number of workers and the
conditions of work as explained above. In this way, the study will be trying to provide
some solutions to the shortage of zoo workers.
14
Finally, what the group hopes to achieve in this direction is to bring to the attention of all
stakeholders, NGOs, individuals, donors, etc the urgent need to come to the aid of the
Accra Zoo and to help save it and raise its image, as the government alone cannot do
much.
1.6 METHODOLOGY
1.61 SOURCE OF DATA
Basically, the study will apply both the primary and secondary source of data. For the
primary data, the group will collect the needed data and information by way of
interviews, which will be conducted at the Accra Zoo and where necessary, the Ministry
of Lands, Forestry and Mines. If the need arises for other institutions to be contacted, the
proponents of the study will not hesitate to do so.
Among the people who will be interviewed will be the director and other workers of the
zoo, and possibly, the general public and visitors to the zoo.
With regards to the secondary data, the needed information will be gathered from the
Internet, the media and various literature.
1.62 INVESTMENT CRITERIA
For the analysis of data, investment criteria will be used to ascertain the costs and
benefits of the project. The investment criteria that will be employed in the analysis of the
15
project's viability is basically the discounted cash flow method – Net Present
Value( NPV) and the Benefit Cost Ratio approach , and where possible, the payback
method. The group will also make use of a sensitivity analysis to check the sensitivity of
the project to economic trends / changes.
The discounted cash flow method has been favored because it takes into consideration the
time value of money and also the relative size of the project. Among these, the NPV
criteria is to be the main tool for decision making since it is the most technically superior
criteria and relatively simpler to calculate as far as investment decisions are concerned
In order to make all future values comparable with the present, all future benefits will be
discounted using a discount rate of 16.5%. This is the current annual interest rates on the
Government of Ghana 1 – year note quoted by the Central Bank in the dailies after a
competitive bidding by commercial banks.
NPV=
Where:n = lifetime of the projectr = discount rateBί = benefits for ίth yearCί = costs for ίth yeari = year
1.7 STRUCTURE OF THE STUDY
16
Table 1.01 Contents of project work
Chapter Content
One Introduction( Proposal)
Two Elements of project appraisals (Technical, social, economic, institutional, financial)
Three Elements of Costs and Benefits
Four Calculating the investment criteria and analysis of results
Five Sensitivity analysis, summary, recommendations and conclusion
1.8 EXPECTED PROBLEMS
The first and most significant problem we envisage is finding relevant literature on how a
modern zoo should look like to meet international standards.
In CBA, issues about costs and benefits travel beyond the financial implications. In most
cases, the advantages, disadvantages, as well as, the opportunity cost of a project are
rather analyzed. In measuring the benefits and costs, therefore, two main problems are
usually encountered: externalities and pricing.
17
CHAPTER TWO
ELEMENTS OF PROJECT APPRAISAL
2.1 INTRODUCTION
This chapter seeks to provide a comprehensive preview of all aspects of the project, thus
laying the foundation for the implementation of the project. Five major aspects of this
phase include:
a. Technical appraisal
b. Institutional appraisal
c. Economic appraisal
d. Financial appraisal
e. Social appraisal
2.2 TECHNICAL APPRAISAL
Under this, we are concerned with five issues:
2.21 Location
The refurbished zoo will be located on the same 1.2-hectare area it currently occupies.
2.22 Technology
There are basically two types of technology involved in such a project:
18
· Labor – intensive, where the main input is the human capital with a
lesser percentage of capital.
· Capital – intensive, where the ratio of capital to labor is relatively high, i.e. more
capital, less labor.
For our project, we would use the labor – intensive method since labor in Ghana is
abundant and this method is cheaper compared to the capital – intensive method, which
would require a lot of investment, and technology, which is unavailable to us.
2.23 Equipment
Here we include all items needed under the new system:
· Air conditioners
· Computers
· Security cameras
· Executive chairs and desks
· Printers
2.24 Services
The services of experts will be needed in the upgrading of this zoo. There will be the
need for quantity surveyors, engineers, architects, contractors, and zoologists. This
project will give preference to local companies, entrepreneurs and individuals as much as
possible. Since the zoo is already in operation, availability of utility services will not be a
problem.
19
2.25 Project schedule
The project will be completed in a period of sixteen months. The last two months are to
take care of any unexpected delays. If there are no such delays then the project will be
completed in fourteen months and commissioned thereafter. This schedule is based on the
assumption that 90% of all funds needed are available by the commencement of the
project.
Phase One
This involves the redesigning of the cages, and the renovation of the offices and the
washrooms.
Table 2.01 Project timetable phase one
TimeDuration of activity
(months)Activity
Year One
1 – 3 Redesign and of cages
4 – 5 Renovation of offices
6 Renovation of washrooms
Phase Two
This stage involves providing entertainment facilities and resting places for visitors and
landscaping the zoo’s environs.
Table 2.02 Project time table phase two
20
TimeDuration of Activity
(months)Activity
Year One
7 Providing entertainment
facilities
8 Providing visitor resting places
9 – 10 Landscaping the environment
Phase Three
This will include the restocking of the zoo, the creation of a website for the zoo and the
purchase of vehicles.
Table 2.03 Project time table phase three
TimeDuration of Activity
(months)Activity
Year One 11 – 12 Restocking of the zoo
Year Two
1 – 2 Restocking of the zoo
3 Creation of website
4 Purchase of vehicles
21
2.3 INSTITUTIONAL APPRAISAL
To ensure the effective implementation of the project, the Ministry of Lands, Forestry
and Mines and the Wildlife Division should work as a unit in mobilizing funds and
supervising the implementation of the project.
Before the project can be implemented, the authorities of the zoo have to approve of
the project. This will be done if the project is deemed necessary and feasible and flow
of funds is assured. However, since the zoo will still be in operation, the
implementation of the project should not in any way undermine or act as an obstacle
to the smooth and effective running of the zoo.
Before the approval and implementation of the project, the authorities of the zoo must
therefore put in place measures to ensure that the implementation of the project does
not seriously interfere with the daily activities of the zoo.
The government and the Ministry of Lands, Forestry and Mines can also ensure
effective implementation of the project by acting as advisors to the zoo and providing
the zoo with some of the funds and expenses needed for the project.
2.4 ECONOMIC APPRAISAL
22
Under this appraisal, we are interested in assessing the contribution of the project to
the developmental objectives of the nation as a whole. We would also look at the
sectorial setting of the project and its contribution to that sector.
2.41 Employment
Both during and after the implementation of the project, it is expected to provide employment to a section of the Ghanaian labor force (both skilled and unskilled), especially those around the Accra zoo area e.g. laborers, carpenters, painters, veterinary officers, zoologists, etc. This would help reduce unemployment, which is one of the major problems the government seeks to address.
2.42 Revenue
On the average the zoo receives about 214,555 visitors annually, with the gate fees
providing about 306,667,000. With the implementation of the project, it is expected
that the zoo would receive 50% more visitors than it is doing now. This will increase
the amount of money generated, a percentage of which can be used for the expansion
or maintenance of the place.
2.5 FINANCIAL APPRAISAL
Here the group is concerned with ensuring the financial viability of the project, i.e. to
find out the cost involved in implementing the project and to ensure that there are
sufficient funds to cover the entire project. The project in question is not an existing
one; hence, the costs were all estimated with the help of Mr. Festus Courage Agya –
yao, the acting director of the Accra zoo.
Table 2.04 Breakdown of cost structure of the project.
23
PROJECT COST ( ¢)
Reconstruction of cages 1,872,769,324
Renovation of offices 254,880,970
Renovation of washrooms 53,100,000
Provision of entertainment facilities 101,500,000
Provision of resting places 19,500,000
Landscaping and pavement 272,000,000
Restocking of the zoo 291,373,920
PROJECT COST (¢)
Creation of website 13,662,285
Purchase of vehicles 1,326,373,874
Sub Total 4,205,160,313
Contingencies (10%) 420,516,031.3
Grand Total 4,625,676,344
The table below gives a summary of the sources of funding for this project.
24
Table 2.05 Sources of funding for project
SOURCE AMOUNT (¢) %
Government 693,851,451.6 15
NGOs & Organizations 2,312,838,172 50
Companies 1,387,702,903 30
Individuals 231,283,817.2 5
Total 4,625,676,344 100
2.6 SOCIAL APPRAISAL
This appraisal is concerned with the social impact of the project. Here, we are
concerned mainly with the issue of equity in the distribution of benefits both during
the lifetime of the project and afterwards. With respect to equity in the distribution of
benefits, the project is expected to be highly equitable, cutting across gender,
ethnicity, religion and even location. Since the project is a public one every member
of the public can benefit from it. All residents of Ghana, Ghanaian and non –
Ghanaian alike can benefit from the project without any restrictions.
25
CHAPTER 3
ELEMENTS OF COSTS AND BENEFITS
3.1 INTRODUCTION
Evaluating the feasibility of this project requires the assessment of the costs to be
incurred and benefits to be accrued from the project. The objective of this chapter is
26
to outline all these benefits and costs; real and pecuniary, direct and indirect, tangible
and intangible.
Real benefits and costs are what we use to measure the allocative effect of a project.
They reflect the addition to the community welfare as against the real costs measured
in terms of resource withdrawal from the project.
Pecuniary Benefits and Costs are concerned with the distributional effects of a given
project. As a result of implementing a project, there will be a redistribution of income
such that as one group of the society benefits, the other group loses. The net benefit is
normally zero. Hence, in calculating the net profitability of the project, the pecuniary
benefits and costs are usually excluded.
Direct Benefits and Costs are those benefits and costs that are closely related to the
main objective of the project.
Indirect Benefits and Costs are those benefits and costs that are by nature by –
products of the main objective of the project, i.e. they arise as a spin – off of a given
project.
Tangible Benefits and Costs are those that can be valued at market prices, whereas
intangible benefits and costs cannot be properly evaluated at market prices.
27
3.2 ANALYSIS OF COST STRUCTURE OF THE PROJECT
The cost structure of upgrading the Accra zoo can be classified into two:
The initial capital outlay, i.e., the costs of renovation and refurbishment.
The maintenance and operational costs
3.3 CAPITAL OUTLAY
This includes the initial cost of upgrading the whole zoo. This will include the
following:
1. Redesigning of the cages in such a way as to maximize the limited land size and to
reproduce the natural habitat of the animals.
2. Renovation of offices in order to make working conditions pleasant.
3. Renovation of washrooms.
4. Provision of entertainment facilities
5. Provision of proper resting places.
6. Redesigning the landscape.
7. Restocking of the zoo in order to meet visitors' expectations.
8. Provision of a website.
9. Provision of vehicles for efficient transportation system.
3.31 Redesigning of cages
The cost of redesigning a cage differs in relation to the animal groups. However, in this
analysis, we will use the cost of redesigning a cage for a primate as the yardstick for our
estimation.
28
Table 3.01 Breakdown of cost involved in redesigning a primate cage
Breakdown cost ($) cost (¢) 9108.19
Substructure 2780.50 25,325,322.3
Superstructure 2713.45 24,714,618.16
Chain link fencing 4789.80 43,626,408.46
Sub total 10283.75 93,666,348.91
5% Preliminaries 514.19 4,683,340.216
Total 10797.94 98,349,689.13
10% Contingencies 1079.79 9,834,932.48
Grand total11877.73 108,184,621.6
Table 3.02 Breakdown of cost involved for all cages
Animal Group Cost per cage ( ¢ ) No. of Cages
Total Cost ( ¢ )
Primate 108,184,621.6 1 108,184,621.6
Herbivore 108,184,621.6 4 432,738,486.4
Carnivores 108,184,621.6 4 432,738,486.4
Reptiles 108,184,621.6 2 216,369,243.2
29
Rodents 108,184,621.6 1 108,184,621.6
Birds 108,184,621.6 3 324,553,864.8
Labour 250,000,000
Total 15 1,872,769,324
3.32 Renovation of offices
Table 3.03 Breakdown of cost involved in office renovation
Item No. Unit Cost ( ¢ ) Total Cost ( ¢ )
Painting * 100,000,000
Brushes 10 150,000 1,500,000
Scrapers 10 50,000 500,000
Cement 100 bags 55,000 5,500,000
Louvres 160 pcs 10,000 1,600,000
Floor carpet 100 yards 127,500 12,750,000
Curtains 100 yards 100,000 10,000,000
Furniture (chairs & desks) 10 635,897 6,358,970
Computers 6 11,112,000 66,672,000
Printers 2 3,821,000 7,642,000
Labour 42,358,000
30
Total 254,880,970
* Table 3.04 Painting breakdown
Item No. Unit cost ( ¢ ) Total cost ( ¢ )
Oil paint 100 gallons 100,000 10,000,000
wood primer 50 gallons 50,000 2,500,000
Turpentine 50 gallons 50,000 2,500,000
Emulsion paint 150 gallons 50,000 75,000,000
Labour 10,000,000
Total 100,000,000
3.33 Renovation of washrooms
Table 3.05 Breakdown of renovation cost of washrooms
Items No. Unit Cost ( ¢ ) Total Cost (
¢ )Water closet 10 1,000,000 20,000,000
Wash hand basin 5 500,000 2,500,000
Wall and floor tiles 2 rooms 10,000,000 per room 20,000,000
Louvres 20 100,000 200,000
Doors 2 200,000 400,000
Labour 10,000,000
31
Total 53,100,000
3.34 Provision of entertainment facilities
Table 3.06 Breakdown of cost of entertainment facilities
Item No. Unit cost ( ¢ ) Total cost ( ¢ )
Merry-go-round 3 8,500,000 25,500,000
Swing 3 5,500,000 16,500,000
See saw3
4,000,000 12,000,000
Slides 3 7,500,000 22,500,000
Hunt house 2 10,000,000 20,000,000
Labour 5,000,000
Total 101,500,000
3.35 Provision of resting places
32
Table 3.07 Breakdown of cost of resting places
Item No. Unit cost ( ¢ ) Total cost ( ¢ )
Seats 25 700,000 17,500,000
Labour 2,000,000
Total 19,500,000
3.36 Redesigning of landscape
Table 3.08 Breakdown of cost of landscape
Item No. Unit cost ( ¢ ) Total cost ( ¢ )
Grass and seedlings 75,000,000
Black soil 1000 bags 10,000 10,000,000
Manure 500 bags 8000 4,000,000
Watering can 3 5000 150,000
Shears 3 50000 150,000
Ladder 2 100,000 200,000
Sprinklers 2 100,000 200,000
Pavement blocks 55766 3000 167,300,000
Labour 15,000,000
33
Total 272,000,000
3.37 Restocking the zoo
Table 3.09 Breakdown of restocking cost
Animal No. Unit cost ( ¢ ) Total costs ( ¢ )
Giraffe 2 13,662,000 27,324,000
Warthog 2 9,105,000 18,216,000
Buffalo 2 9,105,000 18,216,000
Elephant 2 75,000,000 150,000,000
Roam antelope 2 4,554,000 9,108,000
Heart beast 2 8,015,040 16,030,080
Bongo 2 910,000 1,821,600
Birds 4 455,400 1,821,600
Pigmy hippo 2 4,918,320 9,836,640
Snakes 10 400,000 4,000,000
Sub total 256,373,920
34
Shipping costs 25,000,000
Labour 10,000,000
Grand Total 291,373,920
Item Cost ( $ ) Cost ( ¢ )
3 page starter website 1500 13,662,285
3.38 Creation of website
3.39 Provision of vehicles
Table 3.11 Breakdown of cost involved in purchasing vehicles
35
Item No. Unit cost ( ¢ ) Total cost ( ¢ )
Rodeo Denver pickup 2 224,405,186 444,810,371
Chevrolet express van
2 262,078,996 524,157,992
Chevrolet S SR Truck 1 357,405,451 357,405,451
Total 5 1,326,373,814
TOTAL COST
Table 3.12 Breakdown of total cost
Project Cost ( ¢ )
Cages1,872,769,324
Offices254,880,970
Washrooms 53,100,000
Entertainment 101,500,000
Resting place 19,500,000
Landscape 272,000,000
Restocking 291,373,920
Website 13,662,285,
Vehicles 1,326,373,814
Total 4,205,160,313
10% Contingencies 420,516,031.3
Grand total 4,625,676,344
36
3.4 MAINTENANCE AND OPERATIONAL COSTS
The maintenance cost shall be the cost of maintaining the structures and facilities of the
zoo, while the operational cost will be the day to day cost of running the zoo. For
instance, water bill, electricity bill and feeding of the animals are all operational costs.
This should be so in order to make the place always attractive to its visitors. The group,
in consultation with the acting director of the zoo, agreed that the maintenance and
operational cost should be 20 per cent of the total capital outlay.
Therefore, maintenance and operational costs will be:
=20 ∕ 100 x 4,625,676,344
=925,135,268.8
The acting director also informed the group that the zoo has never had any major
upgrading project since its establishment. Thus, following the implementation of this
project, the lifespan will be not less than twenty years. The group has therefore estimated
the lifespan of the project to be twenty years.
The maintenance and operational costs shall be adjusted by 10 percent annually because
of a number of macroeconomic factors such as inflation and exchange rate changes.
The projected maintenance and operational cost from 2008 to 2027 is as follows:
Table 3.13 Maintenance and operational cost
37
No. Year Cost ( ¢ )
1 2008 925,135,268.8
2 2009 1,017,648,796
3 2010 1,119,413,676
4 2011 1,231,355,044
5 2012 1,354,490,548
6 2013 1,489,939,603
7 2014 1,638,933,563
8 2015 1,802,826,919
9 2016 1,983,109,611
10 2017 2,181,420,572
11 2018 2,399,562,629
12 2019 2,639,518,892
13 2020 2,903,470,781
14 2021 3,193,817,859
15 2022 3,513,199,645
16 2023 3,864,519,609
17 2024 4,250,971,570
18 2025 4,676,068,727
19 2026 5,143,675,600
20 2027 5,658,043,160
38
3.5 ANALYSIS OF BENEFITS OF THE PROJECT
This is basically the benefits to be realized after the implementation of the project and is
of different forms – direct, indirect, tangible and intangible.
3.6 DIRECT TANGIBLE BENEFITS
The direct tangible benefits are those benefits related closely to the main objective of the
project.
3.61 Increased Revenue
On the average, the zoo receives about 102,996 visitors annually. The breakdown of the
number of visitors from 2001 to 2005 and the revenue associated with them is as follows:
Table 3.14 Visitors to the zoo from 2001 to 2005
Year No. of visitors Revenue received (¢)
2001 67,699 59,768,000
2002 64,667 72,202,900
2003 82,621 117,137,200
2004 85,441 197,475,900
2005 214,555 306,667,000
39
With the implementation of the project, we expect an increase of 50 percent in the
number of visitors to the zoo. The direct tangible benefit will therefore be the 50%
increment in the number of visitors. We will use the 2005 figure as our base year for this
calculation.
Although the zoo currently charges a flat rate of ¢ 5000 per visitor, after the
implementation of the project, this fee will be increased and will no longer be a flat rate.
The fees to be charged are as follows:
1. Ghanaian:
* Children - ¢ 5000
* Adults - ¢ 10000
2. Non-national:
* Children - ¢ 10000
* Adults - ¢ 20000
Due to the difficulty in determining the exact distribution of the visitors of the zoo into
the above categories, an average of ¢15000 will be used in our calculations.
Table 3.15 Gate proceeds for a year
No. of visitors Gate fee/ visitor (¢) Total revenue (¢)
107,277 15000 1,609,155,000
40
3.62 Rent from restaurant
This is the amount of money accruing to the zoo through the renting out of the restaurant.
Table 3.16 Annual rent received
Monthly rent ( ¢ ) No. of months Total revenue ( ¢ )
5,000,000 12 60,000,000
3.7 DIRECT INTANGIBLE BENEFITS
These are benefits accruing to the project that cannot be properly evaluated at market
prices.
3.71 Opportunity for research
One of the aims of the zoo is to be a centre of excellence in conservation, education,
research and tourism. The implementation of the project will provide better facilities to
enhance this research function.
3.72 Welfare of the animals
Currently, most of the animals at the zoo are restricted in their movement due to the cage
design and this seriously hampers their physical well-being. After the implementation of
41
the project, we expect an increase in their cage sizes and this will go a long way to make
them healthier and happier.
3.8 INDIRECT TANGIBLE BENEFITS
These are benefits not closely linked to the main objectives of the project that can be
valued at market prices.
3.81 Brain drain and change of profession
Our observation and enquiry have revealed that most specialists and skilled workers do
not want to work in the zoo. This is because of the poor and deplorable conditions there
and the low remuneration. Currently, the zoo has only two professional workers out of its
total workforce of thirty four people.
The cost to the government of training a zoologist and a veterinary doctor is about 14 and
15 million cedis a year respectively. It takes four years to train a zoologist and seven to
train a veterinary doctor. Below is a breakdown of the cost involved in training these
workers and this also represents the amount of money saved should they stay on at the
zoo as a result of the implementation of the upgrading project.
42
Table 3.17 Amount of money saved on training professionals
Professional Cost of train. ( ¢) No of years of training
Total Cost ( ¢)
Zoologist 14,000,000 4 56,000,000
Veterinary doctor 15,000,000 7 105,000,000
Total 161,000,000
3.9 INDIRECT INTANGIBLE BENEFITS
These are the benefits that cannot be properly evaluated in the market.
3.91 Improvement in standard of living
After the upgrading, more hands will be needed for the upkeep of the animals as already
stated. Thus more people will be employed and by so doing increasing their standard of
living.
TOTAL BENEFITS
Table 3.18 Breakdown of total benefits
Item Amount (¢)
Gate proceeds 1,609,155,000
Rent from restaurant 60,000,000
43
Brain drain 161,000,000
Total 1,830,155,000
The benefits are expected to increase by 10% per annum and to have a total project life
span of 20 years. The projected array of benefits from 2008 to 2027 is as follows:
Table 3.19 Total Benefits
No. Year Benefit (¢ )
1 2008 1,830,155,000
2 2009 2,013,170,500
3 2010 2,214,487,550
4 2011 2,679,529,936
5 2012 2,947,482,929
6 2013 3,242,231,222
7 2014 3,566,454,344
8 2015 3,923,099,779
9 2016 4,315,409,756
10 2017 4,746,950,732
11 2018 5,221,645,805
12 2019 5,743,810,386
13 2020 6,318,191,424
14 2021 6,950,010,567
15 2022 7,645,011,624
16 2023 8,409,512,786
44
17 2024 9,250,464,064
18 2025 10,175,510,470
19 2026 11,193,061,520
20 2027 12,312,367,670
CHAPTER FOUR
METHODOLOGY AND ANALYSIS
4.1 INTRODUCTION
The main essence of CBA is to access the viability of a project and its economic
implications and in this chapter all necessary calculations will be done to this effect.
4.2 METHODOLOGY
The investment criteria chosen for this project are the Net Present Value (NPV), the
Benefit – cost ratio (B/C) and the Payback Period (PP). The group will also make use of a
sensitivity analysis.
4.3 THE NET PRESENT VALUE
Net present value (NPV) is the difference between the present value of cash inflows and
the present value of cash outflows. NPV is used in capital budgeting to analyze the
profitability of an investment or project.
45
NPV analysis is sensitive to the reliability of future cash inflows that an investment or
project will yield.
NPV compares the value of a cedi today to the value of that same cedi in the future,
taking inflation and returns into account.
4.31 REASONS FOR USING THE NPV AS MAJOR INVESTMENT CRITERION
The NPV method is the most technically superior criterion for investment decisions.
Time is really important in making decisions about project choice. The idea of NPV is
therefore to try to express all future values in terms of the present. The basic notion of the
NPV approach is that present consumption yields more than the same amount of future
consumption. We must therefore convert all future values into the present by discounting
the future stream of income to give the true future value of the project.
Since there are a number of investment projects available to choose from, it is almost
always difficult to choose from among the lot, the most economically viable. Fortunately,
the NPV method provides simple but effective measure of making such choices as
demonstrated above.
Also, the NPV is quite simple to calculate, unlike other methods, such as the IRR, which
is very cumbersome. Because the lifespan of the project is long, it will be extremely
difficult to calculate the IRR, hence, our preference for the NPV.
46
The NPV criterion takes into consideration the relative size of the project and therefore
dismisses any possibility of making wrong choices. The size of the project in question is
quite big, hence the large NPV, as illustrated below. However, the IRR, unlike the NPV,
is sensitive to the economic life and scale of the project. The IRR tends to overestimate
the value of benefits for short term projects, while projects with longer gestation period
tend to suffer when the IRR is used. Thus, the NPV will assist the zoo to better analyze
the renovation and refurbishment project than other smaller projects.
The NPV is a very simple method for the analysis of data and can be easily understood
by any decision or policy maker with little explanation, as can be seen from the earlier
calculations.
Thus, among all the investment criteria, the NPV method ranks superior.
4.32 DECISION RULE FOR NPV
If the NPV of this project is positive, it should be accepted. However, if NPV is negative,
the project should be rejected because cash flows will also be negative.
4.33 CHOICE OF DISCOUNT RATE
The current market discount rate of 16.5% has been chosen for the project evaluation.
This is because it is an accurate measure of the market’s interest rate. Also given the
relative stability enjoyed in recent times, it can be used as an accurate measure of the
economic situation.
47
4.34 FORMULA F0R NPV
Where:
n = lifetime of the project
r = discount rate
Bί = benefits for ίth year
Cί = costs for ίth year
i = year
Table 4.01 below shows the calculation of the NPV for a period of twenty years
Year Benefit
(A)
M & O cost
(B)
A – B
(C)
Discount
rate(D)
C x D = NPV
2008 1,830,155,000 925,135,268.8 905,019,731.2 0.8584 776,868,937.3
2009 2,013,170,500 1,017,648,796 995,521,704 0.7368 733,500,391.5
2010 2,214,487,550 1,119,413,676 1,095,073,874 0.6324 692,524,717.9
2011 2,435,936,305 1,231,355,044 1,204,581,261 0.5429 653,967,166.6
2012 2,679,529,936 1,354,490,548 1,325,039,388 0.4660 617,468,354.8
2013 2,947,482,930 1,489,939,603 1,457,543,327 0.4000 583,017,330.8
2014 3,242,231,223 1,638,933,563 1,603,297,660 0.3433 550,412,086.7
48
2015 3,566,454,345 1,802,826,919 1,763,627,426 0.2947 519,741,002.4
2016 3,923,099,780 1,983,109,611 1,939,990,169 0.2530 490,817,512.8
2017 4,315,409,758 2,181,420,592 2,133,989,166 0.2171 463,289,047.9
2018 4,746,950,734 2,399,562,629 2,347,388,105 0.1864 437,553,142.8
2019 5,221,645,807 2,639,518,892 2,582,126,915 0.1600 413,140,306.4
2020 5,743,810,388 2,903,470,781 2,840,339,607 0.1373 389,978,628
2021 6,318,191,427 3,193,817,859 3,124,373,568 0.1179 368,363,643.7
2022 6,950,010,570 3,513,199,645 3,436,810,925 0.1011 347,461,584.5
2023 7,645,011,627 3,864,519,609 3,780,492,018 0.0869 328,524,756.4
2024 8,409,512,790 4,250,971,570 4,158,541,220 0.0746 310,227,175
2025 9,250,464,069 4,676,068,727 4,574,395,342 0.0640 292,761,301.9
2026 10,175,510,480 5,143,675,600 5,031,834,880 0.0549 276,247,734.9
2027 11,193,061,530 5,658,043,160 5,535,018,370 0.0471 260,699,365.2
TOTAL 9,506,564,188
NPV = BPV – CPV
Where
NPV = Net Present Value
BPV = Present Value of Benefits
CPV = Present Value of Cost
NPV = 9,506,564,188 – 4,625,676,344
= ¢4,880,887,844
49
4.35 DECISION BASED ON RESULT
Using the NPV method with a discount rate of 16.5% the project will yield an NPV of
¢4,880,887,844. This positive NPV would be achieved within twenty years period of the
project. From the above analysis it is clear that the project is highly beneficial and will
contribute to the welfare of all Ghanaian citizens.
4.4 BENEFIT – COST RATIO (B/C)
This is the ratio of future array of benefit to that of the cost.
4.41 DECISION RULE FOR BENEFIT -COST RATIO
If the ratio is less than one, we will not accept the project but if it is greater than one, then
the project is profitable and ought to be implemented.
4.42 FORMULA FOR BENEFIT -COST RATIO
B/C =
4.43 CALCULATION OF BENEFIT-COST RATIO
B/C =
50
=
= 2.06
4.44 DECISION BASED ON RESULT
From above it can be seen that the Benefit-cost ratio is greater one. This implies that the
project is viable and should be implemented.
4.5 PAYBACK PERIOD
Payback period is the length of time required to recover the cost of an investment. All
other things being equal, the better investment is the one with the shorter payback period
Table 4.02 shows the calculation of payback period for eight years []*
Year NPV Ci NPV - Ci
2008 776,868,937.3 4,625,676,344 [3,848,807,407]
2009 733,500,391.5 3,848,807,407 [3,115,307,015]
2010 692,524,717.9 3,115,307,015 [2,422,782,297]
2011 653,967,166.6 2,422,782,297 [1,768,815,131]
2012 617,468,354.8 1,768,815,131 [1,151,346,776]
2013 583,017,330.8 1,151,346,776 [568,329,445.1]
2014 550,412,086.7 568,329,445.1 [17,917,358.4]
51
2015 519,741,002.4 17,917,358.4 501,823,644
* Figures in parenthesis [] represent negative values
Where
Ci = outstanding cost
4.51 DECISION BASED ON RESULT
From the above table, it can be seen that it will take the zoo eight years to recoup its
initial investment. But by the eight year it would have recovered its investment and even
made some gain of ¢501,823,644.
From the analysis it can be seen that the project would be beneficial in the eighth year.
4.6 SENSITIVITY ANALYSIS
Most projects are influenced by economic trends. A sensitivity analysis seeks to
determine how sensitive a project is to these changes in economic indicators, which affect
the discount rate. To do this, we will assume a change in economic indicators that shift
the discount rate either upwards or downwards and recalculate our investment criteria. A
timely sensitivity analysis is needed to access the viability of this project even when
market trends change.
52
4.61 SENSITIVITY ANALYSIS USING A DISCOUNT RATE OF 15.5%
Here, with a discount rate of 15.5%, we will analyze the three investment criteria, i.e. net
present value, benefit-cost ratio, payback period.
CALCULATION OF NEW NPV
Year Benefit
(A)
M & O cost
(B)
A – B
(C)
Discount
rate(D)
C x D = NPV
2008 1,830,155,000 925,135,268.80 905,019,731.2 0.865801 783,566,866.8
2009 2,013,170,500 1,017,648,796 995,521,704 0.749611 746,254,158.7
2010 2,214,487,550 1,119,413,676 1,095,073,874 0.649014 710,718,246.1
2011 2,435,936,305 1,231,355,044 1,204,581,261 0.561917 676,874,519.9
2012 2,679,529,936 1,354,490,548 1,325,039,388 0.486508 644,642,400.3
2013 2,947,482,930 1,489,939,603 1,457,543,327 0.421219 613,945,143.2
2014 3,242,231,223 1,638,933,563 1,603,297,660 0.364692 584,709,660.3
2015 3,566,454,345 1,802,826,919 1,763,627,426 0.315751 556,866,343.2
2016 3,923,099,780 1,983,109,611 1,939,990,169 0.273377 530,348,898.4
2017 4,315,409,758 2,181,420,592 2,133,989,166 0.23669 505,094,184.2
2018 4,746,950,734 2,399,562,629 2,347,388,105 0.204927 481,042,084.8
2019 5,221,645,807 2,639,518,892 2,582,126,915 0.177426 458,135,318.8
2020 5,743,810,388 2,903,470,781 2,840,339,607 0.153615 436,319,351.3
2021 6,318,191,427 3,193,817,859 3,124,373,568 0.133 415,542,239.3
2022 6,950,010,570 3,513,199,645 3,436,810,925 0.115152 395,754,513.7
2023 7,645,011,627 3,864,519,609 3,780,492,018 0.099698 376,909,060.7
53
2024 8,409,512,790 4,250,971,570 4,158,541,220 0.086319 358,961,010.2
2025 9,250,464,069 4,676,068,727 4,574,395,342 0.074735 341,867,628.8
2026 10,175,510,480 5,143,675,600 5,031,834,880 0.064706 325,588,218.1
2027 11,193,061,530 5,658,043,160 5,535,018,370 0.056022 310,084,017.4
TOTAL 10,253,223,864
NPV = BPV – CPV
Where
NPV = Net Present Value
BPV = Present Value of Benefits
CPV = Present Value of Cost
NPV = 10,253,223,864 – 4,625,676,344
= ¢5,627,547,516
ANALYSIS
Using a discount rate of 15.5% also yielded an NPV of ¢5,627,547,516. This implies that
even if there is a reduction in the discount rate our project will still be viable. This NPV
of ¢5,627,547,516 is greater than the initial one.
CALCULATION OF BENEFIT-COST RATIO
B/C =
54
=
= 2.21
ANALYSIS
From above it can be seen that although there is a slight decrease in the discount rate,
Benefit-cost ratio is still greater one. This implies that the project is still viable
irrespective of the decrease in the discount rate.
CALCULATION OF PAYBACK PERIOD
Year NPV Ci NPV - Ci
2008 783,566,866.80 4,625,676,344 [3,842,109,477.20]
2009746,254,158.70
3,842,109,477.20 [3,095,855,319]
2010710,718,246.10
3,095,855,319 [2,385,137,072]
2011676,874,519.90
2,385,137,072 [1,708,262,553]
2012644,642,400.30
1,708,262,553 [1,063,620,152]
2013613,945,143.20
1,063,620,152 [449,675,009]
2014584,709,660.30
449,675,009 135,034,651
* Figures in parenthesis [] represent negative values
ANALYSIS
55
From the above table, it can be seen that with a discount rate of 15.5, it will take the zoo
seven years to recoup its initial investment. But even by the eight year it would recover
its investment and even make some gain of ¢135,034,651.
From the analysis it can be seen that the project would be beneficial in the eighth year.
4.62 SENSITIVITY ANALYSIS USING A DISCOUNT RATE OF 17.5%
Here, we will analyze the three investment criteria, namely, net present value, benefit-
cost ratio and payback period with a discount rate of 17.5%.
CALCULATION OF NPV
Year Benefit
(A)
M & O cost
(B)
A – B
(C)
Discount
rate(D)
C x D = NPV
2008 1,830,155,000 925,135,268.80 905,019,731.2 0.851064 770229558.5
2009 2,013,170,500 1,017,648,796 995,521,704 0.72431 721065969.4
2010 2,214,487,550 1,119,413,676 1,095,073,874 0.616434 675040481.7
2011 2,435,936,305 1,231,355,044 1,204,581,261 0.524624 631952791.2
2012 2,679,529,936 1,354,490,548 1,325,039,388 0.446489 591615379.4
2013 2,947,482,930 1,489,939,603 1,457,543,327 0.379991 553852695.7
2014 3,242,231,223 1,638,933,563 1,603,297,660 0.323396 518500396.1
2015 3,566,454,345 1,802,826,919 1,763,627,426 0.275231 485404626.1
2016 3,923,099,780 1,983,109,611 1,939,990,169 0.234239 454421352.2
2017 4,315,409,758 2,181,420,592 2,133,989,166 0.199352 425415730
56
2018 4,746,950,734 2,399,562,629 2,347,388,105 0.169662 398261538.3
2019 5,221,645,807 2,639,518,892 2,582,126,915 0.144393 372840588.9
2020 5,743,810,388 2,903,470,781 2,840,339,607 0.122888 349042253.5
2021 6,318,191,427 3,193,817,859 3,124,373,568 0.104585 326762960.8
2022 6,950,010,570 3,513,199,645 3,436,810,925 0.089009 305905750.5
2023 7,645,011,627 3,864,519,609 3,780,492,018 0.075752 286379851.6
2024 8,409,512,790 4,250,971,570 4,158,541,220 0.06447 268100286.6
2025 9,250,464,069 4,676,068,727 4,574,395,342 0.054868 250987502.4
2026 10,175,510,480 5,143,675,600 5,031,834,880 0.046696 234967023.7
2027 11,193,061,530 5,658,043,160 5,535,018,370 0.039741 219969128.6
TOTAL 8,840,715,865
NPV = BPV – CPV
Where
NPV = Net Present Value
BPV = Present Value of Benefits
CPV = Present Value of Cost
NPV = 8,840,715,865 – 4,625,676,344
= ¢4,215,039,521
ANALYSIS
57
We have an alternative CBA result based on a slightly higher discount rate of 17.5%.
This new NPV of ¢4,215,039,521 is lesser than what the actual discount rate of 16.5%
yielded, i.e. ¢4,880,887,844 by ¢665,848,323.
However, the positive NPV implies that project is still viable.
CALCULATION OF BENEFIT-COST RATIO
B/C =
=
= 1.91
ANALYSIS
From above it can be seen that although there is a slight increase in the discount rate,
Benefit-cost ratio is still greater than one. This implies that the project is still viable
irrespective of the increase in the discount rate
CALCULATION OF PAYBACK PERIOD
Year NPV Ci NPV - Ci
2008 770229558.5 4,625,676,344 [3,855,446,785.50]
2009 721065969.4 3,855,446,785.50 [3,134,380,816]
2010 675040481.7 3,134,380,816 [2,459,340,334]
58
2011 631952791.2 2,422,782,297 [1,827,387,543]
2012 591615379.4 1,827,387,543 [1,235,772,164]
2013 553852695.7 1,235,772,164 [681,919,468]
2014 518500396.1 681,919,468 [163,419,072]
2015 485404626.1 163,419,072 321,985,554
* Figures in parenthesis [] represent negative values
From the above table, with a discount rate of 17.5% it will still take the zoo eight years to
recoup its initial investment. By the eighth year, it would have recovered its initial
investment and made a gain of ¢321,985,554.
From the analysis it can be seen that the project would be beneficial in the eighth year.
4.7 FINAL ANALYSIS
From all the result of the CBA investment criteria and analysis above, we can conclude
that this project is highly viable.
A summary of results and analysis is as follows:
1) Using a discount rate of 16.5%:
* NPV = ¢4,880,887,844
* B/C = 2.06
* PP = ¢501,823,644 in the eighth year
2) Using a discount rate of 15.5%:
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* NPV = ¢5,627,547,516
* B/C = 2.21
* PP = ¢135,034,651 in the seventh year
3) Using a discount rate of 17.5%:
* NPV = ¢4,215,039,521
* B/C = 1.91
* PP = ¢321,985,554 in the eighth year
We can conclude that our project is not very sensitive to economic changes. Thus, in a
country like ours where market trends are more often than not erratic, this will not affect
the viability of the project. Barring major changes in economic indicators which will
significantly alter the discount rate, the project will be viable even when market trends
differ.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
5.1 INTRODUCTION
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This chapter summarizes the entire project, highlighting the major findings. It also seeks
to make the necessary recommendations as to the needed changes that should be effected
in order to realise a successful and beneficial implementation.
5.2 SUMMARY
The result of the project analysis indicated that there are different categories of visitors to
the zoo, such as, families, school children, groups, churches, holiday makers and different
types of workers. There are differences in the levels and trends of both yearly and
monthly visits to t the zoo. However, the monthly visits are better since they provide the
zoo with insight into the general pattern of visitors to the zoo. As an inference from the
project therefore, the following facts should be established:
· Majority of the zoo visitors are Ghanaians, most of whom reside in the Greater Accra
region.
· The visits by school children outnumber those by adults due to the increasing
population and emphasis placed on environmental education and studies in natural
resources in schools.
· Visitors are often disappointed with the absence of big game such as the elephant,
giraffe, buffalo and waterbuck.
· The majority of the visits to the zoo are for educational and entertainment purposes.
To solve these and many other problems, the renovation of the Accra zoo has been
proposed. This renovated zoo is to house restructured and restocked cages; renovated and
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refurbished offices and wash rooms; redesigned landscape. It would also have the benefit
of a website for information purposes and several new vehicles to facilitate work.
The proposed project is a massive one and in order to help finance it, funds are to be
sourced from the government, NGOs and organizations, companies and individuals. After
completion, the project id expected to be self – supporting with revenue generated
internally. Sources of revenue include monies to be realised from gate fees and renting of
the restaurant.
The project was thoroughly appraised and costs and benefits were clearly outlined and
analysed.
5.3 LIMITATIONS OF THE STUDY
The group faced several difficulties in the analysis of this project. These are briefly
outlined below:
· The inability to quantify all the benefits and costs affects their accurate estimation.
· Difficulty in data collection. Costs and benefit values were not very easy to come by.
· The choice of an appropriate interest rate was also difficult.
5.4 INVESTMENT DECISION
Based on appropriate investment criteria; the NPV, the benefit – cost ratio and the
payback period, the project was assessed and an investment decision made.
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Using a discount rate of 16.5%, the NPV was ¢4,880,887,844, the benefit – cost ratio was
2.06, and the initial investment was recouped by the eighth year with a gain of
¢501,823,644.
Therefore the proposed project should be implemented without delay as it will be useful
for educational and entertainment purposes. In addition the zoo will generate enough
revenue to support itself and also serve as a source of revenue for the nation.
5.5 RECOMMENDATIONS
On the basis of the results and conclusion drawn from the project, it is being
recommended that:
· Management of the zoo should regard visitor flow on occasion as quite unique and
must put in place an effective system to cater for the influx of both groups and
individuals.
· During peak periods there should be more than one attendant at the entrance in order to
speed up the issuing of tickets and a mechanism should be used such as the use of an
adding machine and a computer.
· There should be regular refresher courses for zoo attendants to equip them with the
needed knowledge and experience.
· The plan to bring game such as elephants should be hastened since this will bring more
visitors to the zoo.
· With all urgency a website should be created for the Accra zoo to serve the purpose of
education and advertisement. This will help to ensure that information about the zoo is
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made readily available to the general public.
· A record of visitors and the zoo in general should be computerized for easy access to
researchers, management and for updating of records.
5.6 CONCLUSION
Through intense research and dealings with consultants, and based on the analysis of this
entire project, it has been concluded that the renovation of the Accra zoo is most
appropriate in addressing the problems the zoo currently faces.
This is the most viable way to achieve the objective of the zoo to be a unit of excellence
in conservation, education and recreation.
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5.7 References
Mr. Festus Courage Agya – yao Acting Director Accra Zoo
Mr. Opoku Staff Accra Zoo
Mr. William Bekoe (lecture notes) Lecturer Economics Department
Dr. D.K. Twerefou Lecturer Economics Department
The internet:
www.georgiacarpet.com
www.ext-nodak.edu
www.africantrophyhunting.com
www.amazon.com
www.act.co.uk
www.splashdirect.com
www.wallsandfloor.uk.com
www.euro.dell.com
www.officemagic.co.uk
www.edmunds.com
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