Question

Conduct a financial analysis of water system operation for the City of Smallville over the next ten years. Use the data below.   If you lack data, make assumptions or ask for it. Analyze O&M, capital costs and cash flows. The water system currently serves 100,000 people and is to be expanded to handle a population influx of 5% per year for the next ten years. Land use is mixed residential and commercial, but no industry. Base your estimates on residential demands and assume that commercial water use adds 15% to the residential use. You expand the system to accommodate growth and simultaneously maintain and renew the existing system during the period. The system is currently 15 years old and has depreciated on a 30-year depreciation cycle at 3.33% per year on a straight-line basis.

Your system expansion will be staged so that half is built now and half in five years. When you also invest in system renewal to overcome depreciation, the investments would be added to the costs of system expansion. System renewal is governed by the rule that current system value must not fall below 50% of replacement value.

You will take a loan for the first part of the construction and issue bonds for the next increment (in five years). You may vary from this if you choose different capital financing vehicles.   Loans are “revolving loans” and come from an infrastructure bank. Annual loan payments begin in one year and continue for ten years. Recommend how to finance the expansion and renewal with funding from plant investment fees, water use fees, sales tax revenues, and property tax revenues. Commercial property has 25% of the assessed valuation of the residential property.

Current population	100,000 (33,333 households)
Rate of population growth	5% per year for ten years; 0% after that.
Per capita water usage (average)	150 gpcd
Land Use	Mixed residential and commercial.
Planning horizon for capital improvements	10 years to meet demands; 30 yrs for system life
Plant investment fee	$5,000 per house connection
Current water fees	$2.50/1000 gal
Property tax dedicated to water system improvements	0.8 mills
Assessed valuation residential (market value * 0.2)	$980 million
Sales tax dedicated to water system	0.8%
Current anticipated taxable sales	$800 million per year
Interest rate on loan (due in ten years)	8%
Interest rate on bonds (use 20 year life)	6%
Projected inflation rate	0%
Capital cost of new or replacement system	$3,000 for each new person
Current value of existing system (average age15 years)	Replacement value less 15 years depreciation
Capital improvement goal	System value not below 50% of replacement
Depreciation of assets	3.33% per year
O&M cost	$50 per capita per year

1. Set up a spreadsheet and forecast cash flows for the next fifteen years.

2. Schedule for capital improvements (the capital improvement program)

Answer 1

Budgetary and Operating Performance of the National Water Supply and Drainage Board

1. The National Water Supply and Drainage Board (NWSDB) was built up in 1975 as a statutory element and has been working under the supervision of the Ministry of Water Supply and Drainage (MWSD).

NWSDB's command is to create, work, and control a proficient, composed water supply framework and to appropriate water for open, local, and modern purposes.

Before the finish of 2011, an expected 44%1 of the all out national populace approached channeled water supply, of which over 75% was served by NWSDB.

NWSDB was giving channeled water supply to 33% of the absolute national populace, or 6,900,000 individuals. 2 In 2011, Colombo City's populace was around 700,000 and administration inclusion was about 95%, a lot higher than the national inclusion.

NWSDB likewise works channeled sewerage frameworks for 2.3% of the all out national populace.

2. NWSDB's 5-year corporate arrangement for 2012–2016 incorporates plans to build administration inclusion to give channeled water to an extra 1,800,000 individuals by 2016. This will convert into NWSDB offering support inclusion for 40% of the absolute national populace.

To improve the administration inclusion from the current 33% to 40%, NWSDB foresees including in excess of 350,000 new associations across the nation before the finish of 2016, at an expected yearly development pace of 5%. Significant capital ventures are expected to accomplish these administration extension destinations, and simultaneously keep up and improve existing help quality.

3. Colombo City, with an expected complete populace of more than 772,000 by 2020 and a gliding populace of in excess of 500,000 every year, requires quick enhancements in its flimsy framework to fulfill request from the developing populace. The current water supply arrange has been set up for over 100 years and the physical spillage is assessed to arrive at 33%. At the point when joined with other business and evident misfortunes, nonrevenue water (NRW) in Colombo City contains 49% of the water provided to the city. Lessening NRW in this way gives a prompt answer for the issue of finding an extra wellspring of supply that can be utilized for growing current administrations.

4. In 2007–2011, NWSDB improved its monetary presentation through income development and cost control related to water levy increments powerful from 2009. As indicated by evaluated fiscal summaries from 2007 to 2010, just as the unaudited budget reports for 2011, deals incomes expanded by a compound yearly development rate (CAGR) of 16% every year, while direct working costs expanded at a CAGR of just 11%. Net gain improved from lost SLRs1,224 million to a benefit of SLRs479 million, and income from operations3 expanded by a CAGR of 44%. As per inspected and unaudited budget reports, NWSDB arranged normal measured budgetary statements4 1 Central Bank of Sri Lanka. 2011. Yearly Report 2011. Colombo. to figure its money related execution from 2012 to 2021. The budgetary projection is incorporated toward the finish of Appendix 7.

Hence

The professional forma budget reports show that, with a 20% proposed duty increment for 2013 and improved working effectiveness, NWSDB's money related position will keep on improving all through the investigation time frame and full cost recuperation can be accomplished by 2020, the year when the venture program is finished