Suppose the U. Fish and Wildlife Service (USFWS) is considering purchasing a parcel of agricultural land next to the Horicon National Wildlife...
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1. Suppose the U.S. Fish and Wildlife Service (USFWS) is considering purchasing a parcel of agricultural land next to the Horicon
National Wildlife Refuge to add to the refuge. Here's the relevant data used by the USFWS in making its decision:
The purchase price of the parcel is $40,000, incurred in Year 0 (the current year).
In Year 1 there is an $11,000 cost to building a small wildlife viewing stand on the parcel.
The USFWS estimates the annual value of this additional parcel for wildlife viewing will be $6600 per year, starting in Year 1
(next year).
Discount rate= 10%.
a.
You're an analyst for the USFWS, and you're asked to make a recommendation based on a benefit-cost analysis, using only the
data above. Do you recommend that the USFWS purchase the parcel? Show all calculations used in your decision, and be very
clear and concise about your reasoning. (4 pts)
The USFWS takes its analysis to a public hearing for input on whether it should purchase the property. You first explain that the
benefit cost analysis conducted by the government takes account of all costs and benefits. Then you open the floor to questions about
the analysis. The following comments are made. Indicate your best response to each comment.
b. Comment: "I live near the Horicon, and this improvement will cause my property tax to increase. You should have included the
increase in local property taxes as a cost of the improvement" (1 pt)
Possible Responses (check the box that is the best response):
"The property tax change due to the improvement is not a cost of the improvement, it is a transfer from the property owner
to others".
O "You're right, we should account for the change in property taxes due to the improvement."
C.
Comment: "The calculation of net benefits from the park is low, because it ignores the jobs created in making the
improvement" (1 pt)
Possible Responses (check the box that is the best response):
"We have not ignored jobs in the analysis. The cost of labor is counted in the cost of making the improvement."
O "You're right, we should measure and account for the benefits of job creation in our analysis."

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