The city engineer and economic development directors are evaluating two sites for construction of a multipurpose sports arena. The sites are downtown (DT) and southwest (SW) of the metropolitan area....

The city engineer and economic development directors

are evaluating two sites for construction of a

multipurpose sports arena. The sites are downtown

(DT) and southwest (SW) of the metropolitan area.

The city already owns enough land at the DT site;

however, the land for a parking garage will cost

$1 million, and construction costs will be $10 million

for the parking garage, infrastructure relocation, and

drainage. The SW site is 30 km from downtown, but

the land will be donated by a developer who knows

that an arena at this site will dramatically increase

the value of the remainder of his land holdings.

Because of its centralized location, there will

be greater attendance at most of the events held at

the DT site. This will result in more revenue to

vendors and local merchants in the amount of

$700,000 per year. Additionally, the average attendee

will not have to travel as far, resulting in

annual benefits of $400,000 per year. All other

costs and revenues are expected to be the same at

either site. If the city uses a discount rate of

6% per year, and will construct at one site or the

other, which site should be selected? Use a

30-year study period.