Cost-Benefit Analysis of.docx

Cost-Benefit Analysis of Legalizing Casino Gambling in
Virginia
MGT 5064Cost and Economic Analysis
INTRODUCTION
Modern legalized gambling in the United States has been on the
rise in states and tribal

lands since the passing of Indian Gaming Regulatory Act of
1988. It spread from tribal origins to
the riverboats of the Mississippi Delta to land-based facilities in
states. This spread of legalized
gambling has created numerous concerns exist about legalizing
gambling such as the potential
for increased crime, reduced productivity, and domestic and
personal problems among other ills.
Conceptually, many issues in regional public economics and
cost benefit analysis are illustrated
by an analysis of gambling; among them the role of government
revenue, social costs based on
the actions of non-normal gamblers, employment benefits, and
uncertainty about quantitative
measures. However, any decision which results in a major
policy change such as legalizing
gambling should be supported or refuted with a well thought out
cost benefit analysis so policy
decision makers have the right information from which to
decide.
This paper will explore implementing legalized casino
gambling in Virginia by providing
a cost benefit analysis of the data leading to a conclusion that is
based on quantitative measures.

The proposed site for this establishment is the Eastern Shore of
Virginia where a primarily
agricultural economy has been in a down turn and
unemployment is higher than the state
average. The proposed facility will have both Video Lottery
Terminals (slot machines) and table
games which together have proven to have the most revenue.
The method used to produce the
cost benefit analysis will be the nine major steps outlined by
Boardman et al. (2011) in Cost-
Benefit Analysis Concepts and Practice. The theory is the
revenue and other benefits generated
for the state and public would outweigh the cost to society.
BACKGROUND
The state of Maryland currently has five operating casinos and
one under construction.
Data from these operations will be used as a market analogy
method to determine the costs and
benefits of this proposed policy change. According to the
Maryland Lottery and Gaming Control

Agency, Maryland’s casinos contribute hundreds of millions of
dollars annually to state
programs. Casinos in Maryland have contributed more than $1
billion in profit to the Education
Trust Fund, which supports pre-K through 12 public education,
public school and higher-
education construction and capital improvements including
community colleges. (Maryland
Lottery and Gaming Control Agency, 2015) Casino profits also
support local impact grants,
racing industry purses and small, minority and women-owned
businesses. The casinos created
thousands of new jobs and made the communities in which they
are located more attractive to
new businesses. (Maryland Lottery and Gaming Control
Agency, 2015) With the influx of new
enterprise, both businesses and residents can benefit from
visitor spending as well as revenue
generated through gaming, property and sales taxes.
Alternatively, gambling can be a drain on society as it creates
economic costs for
taxpayers, including non-users (non-visitors and non-gamblers).
(Grinols, 2011) The majority of

costs are attributed to addictive gamblers. These
addictive/societal impacts are explained by
Grinols (2011) as the following:
- Increased Crime. E.g. assault, rape, robbery, burglary, auto
theft, embezzlement, fraud.
- Business and Employment Costs. Lost productivity,
unemployment related costs.
- Bankruptcy.
- Suicide.
- Illness. E.g. Stress related, cardiovascular, anxiety,
depression, cognitive.
- Social Service Costs. Treatment, unemployment, and other
social services.
- Family Costs. Divorce, separation, child abuse and neglect,
domestic violence.
- Social Connection Costs. Reduction in social capital
(employer, family, friends).
- Political. Concentration of power, disproportionate political
influence.
The assumption is that the state of Virginia could use an
additional source of revenue to
provide increased services to its constituency and perhaps fund

other projects that would benefit
society as a whole such as education (in keeping with the lottery
philosophy), roads and other
infrastructure, or its “rainy day fund” for disaster relief.
STEP 1: SPECIFIY THE SET OF ALTERNATIVES
Legalized gambling exists in several neighboring states
(Maryland, West Virginia, and
Delaware to name a few). The status quo is no casino gambling
in Virginia and if additional
funds are required by the state the only available source would
be through raising taxes (income,
sales, tourism, etc.). The proposed alternative is to legalize
casino gambling in Virginia and have
additional funds from the gross revenue of the casino available
for the common good. The scope
of this analysis focuses on the cost of raising the desired funds
without analyzing the purpose to
which the funds are spent. The basic analysis compares
Virginia with and without the casino
business.
STEP 2: DECIDE WHOSE BENEFITS AND COSTS COUNT
Standing is determining whose costs and benefits should be
included in the analysis.

(Bordman, Greenberg, Vining, & Weimer, 2011) Those with
standing in the proposed policy
change of legalizing casino gambling in Virginia are the state of
Virginia and its constituents.
The potential company that would be awarded the license to
build a casino has a profit motive
and would only do so if the economics of the project yielded
positive return for its shareholders.
Therefore the company’s costs and benefits will not be included
in this cost benefit analysis.
STEP 3: IDENTIFY THE IMPACT CATEGORIES, CATALGUE
THEM AND SELECT
THE MEASUREMENT INDICATORS
The costs and benefits categories for this analysis are listed in
the table below.
Costs Benefits
State Administrative Fees State Revenue
Addictive/Societal Costs Toll Revenue
Cannibalization Increased Employment
Casino Value

Under the Costs category, State Administrative Fees are those
expenses the state is
expected to pay for administration of the casino and other costs.
The state of Maryland lists these
costs as “safety and security, internal controls, employee
background investigations and
licensing, surveillance, auditing and accounting, day-to-day
operation of machines, compliance,
and responsible gambling program.” (Maryland Lottery and
Gaming Control Agency, 2015)
Addictive/Societal Costs are those described above as defined
by Grinols (2011).
Cannibalization” is that cost attributed to the new casino
business taking away consumers from
existing businesses causing them to close. (Walker, 2014)
Under the Benefits category, the State Revenue is that portion
of the gross revenue from
the slots and the table games that goes to Virginia for its use.
These percentages can vary in
range from 50% to 61% for slot machine games, and is 20% of
the total table game revenue.
(Maryland Lottery and Gaming Control Agency, 2015) Toll
Revenue is the amount paid per car

that travels the Chesapeake Bay Bridge Tunnel from the south
side of Virginia (Hampton Roads
area) to get to the proposed casino location. Increased
Employment is the expected increase in
jobs on the Eastern Shore of Virginia. The Casino Value is the
willingness to pay amount as
determined using the travel cost method which places a
monetary value on a recreational site.
STEP 4: PREDICT THE IMPACTS QUANTITATIVELY OVER
THE LIFE OF THE
PROJECT
The population of visitors to the proposed casino site is derived
from taking 46% of the
populations in Hampton Roads Virginia (1,805,078), Eastern
Shore of Virginia (49,395), and
half of the total population of the Eastern Shore of Maryland
(462,855). Half of the Maryland
Eastern Shore population was used due to competition from
Maryland and Delaware casinos.
Using the market analogy method and the state of Maryland as
the basis, Maryland
estimated the State Administrative Fees to be 4.8% of the total
State Revenue for the casino.

(Maryland Lottery and Gaming Control Agency, 2015) This
figure will be applied to the
estimated gross revenue for the casino in Virginia.
The Addictive/Societal Costs can range from $13,200 to
$52,000 per pathological
gambler. (Kindt, 1994) The National Center for Responsible
Gaming’s research suggests that on
tenth (0.1%) to one (1%) percent of the total U.S. population
has a gambling problem with six
tenths percent (0.6%) being the most likely case. Using
population statistics from the Virginia
Economic partnership for Hampton Roads and Virginia Eastern
Shore, we can arrive at a
potential number of addicted gamblers in Virginia.
Due to the site location and the predominately agricultural
economy of the proposed site
of the casino, Cannibalization is not a factor in this cost benefit
analysis. The likelihood of the
existing businesses on the Eastern Shore of Virginia losing out
to the casino and the
complementary businesses it would attract (hotels, restaurants,
pawn shops) is negligible because

there are so few businesses of this type for competition, and the
enticement of local may be
attractive.
Again using the market analogy method and the data from the
state of Maryland, we can
use the median annual gross revenue as a starting point and
perform sensitivity analysis to
assume higher and lower gross revenues. This data is in the
table below.
The toll revenue is derived from data that show 46% of the
population gambles in casinos
and the toll rate of $20. (Hills, 2010) A low estimate is to use
46% of the Hampton Roads
population making one visit to the casino per year which would
have to use the Chesapeake Bay
Bridge Tunnel. Data reported by the Virginia Economic
Development Partnership shows
1,805,078 adult aged people in this region. (Virginia Economic
Development Partnership, 2015)
Month/Year Hollywood Casino Horseshoe Casino Maryland
Live Casino Casino at Ocean Downs* Rocky Gap Casino Resort
Monthly Total for all Casinos
Nov-14 $6,162,925 $23,371,051 $53,779,355 $3,336,323

$3,521,211 $90,170,865
Dec-14 $6,036,498 $22,909,698 $50,234,547 $3,372,910
$3,076,249 $85,629,902
Jan-15 $6,003,204 $23,157,788 $49,452,221 $3,379,632
$2,973,875 $84,966,720
Feb-15 $6,022,954 $22,989,376 $46,970,008 $3,338,100
$3,474,575 $82,795,013
Mar-15 $6,518,118 $24,700,048 $51,934,173 $4,022,716
$3,855,680 $91,030,735
Apr-15 $6,875,184 $22,941,879 $50,943,770 $4,294,554
$3,927,429 $88,982,816
May-15 $7,120,611 $21,923,621 $58,042,088 $4,991,577
$4,248,398 $96,326,295
Jun-15 $6,435,945 $23,096,716 $52,926,123 $5,288,777
$3,699,504 $91,447,065
Jul-15 $6,900,049 $24,380,317 $56,949,080 $6,391,554
$4,330,644 $98,951,644
Aug-15 $6,558,172 $27,583,023 $52,124,829 $6,075,822
$4,402,613 $96,744,459
Sep-15 $6,204,696 $22,147,812 $49,571,257 $5,712,269
$3,861,627 $87,497,661
Oct-15 $6,228,069 $24,682,772 $54,979,654 $4,658,909
$4,211,180 $94,760,584
Annual Total Revenue $77,066,425 $283,884,101 $627,907,105

$54,863,143 $45,582,985 $1,089,303,759
Average Monthly Revenue $6,422,202 $23,657,008 $52,325,592
$4,571,929 $3,798,582
Notes: * Slots only
The value for increased employment is assuming the casino
would generate enough jobs
to bring the Eastern Shore’s unemployment rate 6.1% down to
the state average of 4.5% times
the population of the Eastern Shore (49,395) times the average
casino salary of $41,805.
(Virginia Economic Development Partnership, 2015) (Payscale,
2015)
The Casino Value is calculated using the travel cost method of
estimating the willingness
to pay as a value for the attraction. The cost per mile of 57.5
cents is the General Services
Agency’s vehicle reimbursement rate. The average wage rates
were extracted from the Virginia
Economic Development Partnership data and Maryland Bureau
of Labor Statistics data. Travel
time was estimated from the distances to the site. The number
of visitors was again

conservatively estimated using the 46% of the population
gambles statistic at one visit per year
with two passengers in each car, except for Maryland’s Eastern
Shore where the total number
was halved due to competition within the state and Delaware.
Vehicle Operating Cost $0.575
Percent of Wages for Travel Opportunity Cost 20%
Average Number of Passengers 2
Location
Round
tripTravel
time
One-way
Distance
Average
Wage Rate
% Wages

Opportunity
Cost Visitors
Total Cost per
Vehicle Visit
Average
Cost per
Person
Value of the
Casino
Hampton Roads 2 60 $22.77 20% 830,336 $87.22 $43.61
$36,209,287
VA Eastern Shore 1.5 30 $18.77 20% 22,722 $45.76 $22.88
$519,895
MD Eastern Shore 4 90 $19.63 20% 107,255 $134.91 $67.45
$7,234,793
$43,963,975
*Total visitors = 46%*population
Travel Cost Method
STEP 5: MONITIZE ALL IMPACTS

The table below list the expected costs and benefits of
legalizing casino gambling in
Virginia showing a $20,100,857 positive net benefit for the
policy change.
Cost Benefit Analysis for Legalized Gambling in Virginia
Costs Amount
State Administrative Fees $3,699,188
Addictive/Societal Costs $146,876,400
Cannibalization $0.00
Total Cost $150,575,588
Benefits Amount
State Revenue $77,066,425
Toll Revenue $16,606,718
Increased Employment $33,039,328
Casino Value $43,963,975
Total Benefit $170,676,445
Annual Net Benefit $20,100,857
STEPS 6 & 7: DISCOUNT BENEFITS AND COSTS TO

OBTAIN PRESENT VALUES
AND COMPUTE THE NETPRESENT VALUE OF THE
ALTERNATIVE
Legalizing casino gambling in Virginia is a policy change
which does not easily lend
itself to discounting or net present value calculations because of
the variability in the benefits
and costs. The purpose of this cost benefit analysis is to show
that legalizing gambling can have
a net positive effect on state revenue to be applied how the state
feels will benefit society as a
whole. By combining the monthly gross revenue data presented
earlier with the table below
showing the percent increase in revenue compared to the same
month in the previous year we
can see there will most likely be growth in revenue in future
years. Although, if Virginia chooses
to add other casinos throughout the state the growth can be
significant. The below data was
extracted from the Maryland Lottery and Gaming Control
Agency financial presentations.
Month

Percent increase in
revenue same month
2014
Nov-14 34.9%
Dec-14 31.7%
Jan-15 28.5%
Feb-15 25.4%
Mar-15 16.9%
Apr-15 24.5%
May-15 27.0%
Jun-15 26.9%
Jul-15 30.2%
Aug-15 20.0%
Sep-15 6.2%
Oct-15 9.2%
Of note, the Horseshoe Casino in Baltimore opened on 24
August 2014 which accounts
for the relatively high percentage increases from November
2014 to August 2015. A true

measure of percentage increase is only seen after the data has
normalized in September and
October of 2015. Using two months of data to attain an increase
rate does not support a solid
conclusion for growth calculations.
STEP 8: PERFORM SENSITIVITY ANALYSIS
The data presented thus far is a conservative estimate of
attendance (once per year) and
uses median measures for gross revenue and most likely case for
addictive behavior. The worst
case scenario is presented below using 1% addictive behavior
and the lowest gross revenue.
Worst Case Cost Benefit Analysis for Legalized Gambling in
Virginia
Costs Amount
Total Cost $246,981,983

Benefits Amount
Annual Net Benefit -$107,788,978
The best case scenario is presented below using .1% addictive
behavior, an average gross
revenue from the existing Maryland casinos, and assumes two
visits per year of the affected
population. By doubling the visits, not only are the visitors
doubled but the percent wages
opportunity costs are also doubled. Both the travel cost method
data and the cost benefit analysis
are shown.
Vehicle Operating Cost $0.575
Percent of Wages for Travel Opportunity Cost 20%
Average Number of Passengers 2

Location
Round
tripTravel
time
One-way
Distance
Average
Wage Rate
% Wages
Opportunity
Cost Visitors
Total Cost per
Vehicle Visit
Average

Cost per
Person
Value of the
Casino
Hampton Roads 2 60 $22.77 40% 1,660,672 $105.43 $52.72
$87,543,973
VA Eastern Shore 1.5 30 $18.77 40% 45,443 $57.02 $28.51
$1,295,682
MD Eastern Shore 4 90 $19.63 40% 214,510 $166.32 $83.16
$17,838,258
$106,677,912
*Total visitors = 46%*population 2 times a year
Travel Cost Method
Best Case Cost Benefit Analysis for Legalized Gambling in
Virginia
Costs Amount

Total Cost $34,930,116
Benefits Amount
Annual Net Benefit $339,254,593
From the data presented, the worst case scenario has a negative
net benefit to society of
-$107,788,978 and the best case has a positive net benefit to
society of $339,254,593. This
variation of $447 million and compared to the conservative
positive net benefit of $20,100,857
shows that this data is extremely sensitive to changes in number
of people who visit the casino,
the number of people who cause an addictive/societal cost, and
the predicted state revenue.
Lastly, although uncalculated, if Virginia were to take more of a

percentage of gross revenue
than that of Maryland then the potential to positively affect net
benefits is true as well.
STEP 9: MAKE A RECOMMENDATION
The data show that there is a positive net benefit of $20 million
using conservative measures and
a $339 million positive net benefit using the most optimistic
measures. The recommendation is
to proceed with the proposed policy change and allow legal
casino gambling in Virginia. The
potential exists for Virginia to use the proceeds as Maryland
does to fund an education trust
fund, horse racing, local impact grants for government, and
small, minority and women-owned
business efforts. Or if Virginia has other priorities, it could
apply the revenue to those projects.

Works Cited
Bordman, A. E., Greenberg, D. H., Vining, A. R., & Weimer, D.
L. (2011). Cost-Benefit
Analysis Concepts and Practice. Boston: Prentice Hall.
Grinols, E. L. (2011). Gambling Economics. Boston: MIT.
Retrieved November 18, 2015, from
http://freedomfoundation.publishpath.com/Websites/freedomfou
ndation/Images/Gambling%20E
conomics-
%20Summary%20Facts%20by%20Professor%20Earl%20Grinols
,%204.29.11.pdf
Hills, C. (2010, June 14). Frequently Asked Questions:
Gambling in the United States. (K.
Boylan, Editor) Retrieved Nov 22, 2015, from CitizenLink:
http://www.citizenlink.com/2010/06/14/frequently-asked-
questions-gambling-in-the-united-
states/
Kindt, J. W. (1994, July 18). Frontline. (K. Boylan, Editor)

Retrieved October 28, 2015, from
PBS:
http://www.pbs.org/wgbh/pages/frontline/shows/gamble/procon/
kindt.html
Maryland Lottery and Gaming Control Agency. (2015, Nov 1).
Casino Financials. (K. Boylan,
Editor) Retrieved November 20, 2015, from Maryland Gaming:
http://gaming.mdlottery.com/financial-reporting/
National Center for Responsible Gaming. (2009, January 15).
How many pathological gamblers
are there? (K. Boylan, Editor) Retrieved Nov 21, 2015, from
National Center for Responsible
Gaming: http://www.ncrg.org/press-room/media-kit/faq/how-
many-pathological-gamblers-are-
there
Payscale. (2015, Nov 22). Average Salary for Industry: Casino.
(K. Boylan, Editor) Retrieved
Nov 26, 2015, from Payscale.com:
http://www.payscale.com/research/US/Industry=Casino/Salary
Virginia Economic Development Partnership. (2015).
Community Profile Eastern Shore,

Virginia. Richmond: Virginia Economic Development
Partnership. Retrieved November 15,
2015, from www.yesvirginia.org
Virginia Economic Development Partnership. (2015).
Community Profile Hampton Roads.
Richmond: Virginia Economic Development Partnership.
Retrieved November 15, 2015, from
www.yesvirginia.org
Walker, D. (2014, October 28). Economic benefits of casinos
likely to outweigh costs. (K.
Boylan, Editor) Retrieved November 16, 2015, from The
Conversation:
http://theconversation.com/economic-benefits-of-casinos-likely-
to-outweigh-costs-33443
2
For your paper, you will create a fictional character for a movie.
The character should be in a management position. Your paper
should utilize appropriate course material (and from your own
research).
Describe the personality of your character (this is to help the
reader understand the challenges your leader faces).

How did your character develop their management traits?
Identify three management traits that the leader possesses, and
explain why they are necessary to a successful manager.
How you can develop each skill or trait in your own life?
Training, education, experience, etc. - but be specific (if you
create goals they should be SMART).
What are the possible disadvantages of having these traits?
How have you seen the selected traits utilized effectively in
your own experiences in life?
How can you market the traits (for this I would like to see
resume bullets for each of the traits)? - Put yourself in your
character's shoes, as if they were writing a resume.
How do you relate to your character? Could you be managed by
him/her/it?
A CBA of the Hyperloop as a New Mode of Transportation
in California

A mode of transportation that could take you the 381 miles
between San Francisco,
CA and Los Angeles, CA in just 35 minutes seems like
something straight out of a
science fiction movie. This is exactly what the Hyperloop; a
new mode of transportation
proposed by entrepreneur Elon Musk, intends to do. In this Cost
Benefit Analysis we
monetize the expected benefits of the project including: travel
time and vehicle cost
savings, safety benefits, ticket revenue, greenhouse gas
reductions, and parking cost
savings. We also calculate construction, maintenance and
operation costs. After
monetizing cost and benefits we perform a sensitivity analysis
with the raw data to
calculate its NPV. We also discuss the encountered limitations
while preparing this CBA,
mostly because this type of project has never been done. Lastly,
because of its positive
NPV the construction of the Hyperloop is recommended as a
new mode of transportation
in California.

Introduction
The possibility of a new mode of transportation in the
United States have always been
a fascinating subject, but also full of uncertainties. Since the
completion of the Interstate
Highway System in 1992 at a cost of $425 billion in 2006
dollars (Neuharth, 2006) the
United States Government have not undertaken a transportation
project of such scale.
Every day, people in the United States commute an average of
25.5 minutes to get to
work (McKenzie, 2013), but in the State of California the
average commuting time is
higher than the national average being 27.2 minutes (U.S.
Census Bureau, 2013).
Furthermore, California ranks first in Mega Commuters. Mega
Commuters being defined
as people traveling 90 or more minutes and 50 or more miles to
work (Rapino & Fields,
2012).

One of the proposed alternatives for the aforementioned
problem is the construction
of a Hyperloop. A Hyperloop is a conceptual high speed
transportation system put
forward by entrepreneur Elon Musk (Musk, 2013). It is of
special interest for the
residents of California since they spend six hours traveling a
total of three hundred eighty
one miles (381) by car between the cities of San Francisco and
Los Angeles (U.S.
Department of Transportation, 2010); two of the most populated
cities in California (U.S.
Census Bureau, 2014) , with Los Angeles being the most
congested metro area in the
United States (Hess and Weigley, 2013). Contrasting this
scenario is the Hyperloop,
which would be capable of traveling between Los Angeles and
San Francisco in
approximately 35 minutes, with a loading and unloading time of
approximately 5 minutes
(Musk, 2013). In this cost benefit analysis we will analyze the
net social benefits of the
Hyperloop, specifically the journey between the City of San
Francisco and the City of

Los Angeles to eventually decide if its construction would be
one of benefit for the
residents of California.
Costs and Benefits
As a simplifying assumption, all benefits and costs are
assumed to occur at the end of
each year, and all benefits, maintenance, and operation costs
begin in the annual year
immediately following the final construction year. Also, the
benefits and costs of the
Hyperloop are estimated assuming the construction of the
passenger and cargo capsules,
and transporting 7.5 million people each way per year.
Benefits
Time traveled savings: Recommended values of travel time
savings were calculated
assuming a 78.6% of personal travel and a 21.4% of business
travel. For personal travel

we use 70% of the total earnings per person-hour and for
business travel a 100% of the
total earnings per-person hour, following guidance from the
Department of
Transportation (U.S. Department of Transportation, 2011).
Because of the intercity nature
of the project, average earnings were calculated utilizing Los
Angeles County average
salary ($25.48), and San Francisco County average salary
($33.34) (Bureau of Labor
Statistics, 2015).
Parking Cost Savings: Parking cost savings were calculated
assuming 50% of the
parking was localized in San Francisco, and 50% in Los
Angeles. The average parking
price per city was estimated by averaging the price data from
fifteen parking spots per
city in San Francisco (SFpark, 2015), and using the average
parking price provided by the
City of Los Angeles (LA Express Park, 2015). It is important to
note that parking prices
in both cities varies with demand of the parking spot, and time
of the day. The amount of

time a person stays on the parking space is around forty minutes
according to the
Coronado Parking Meter Trial (City of Coronado-California,
2014), which was also taken
into account when calculating parking cost savings.
Vehicle cost savings: Vehicle cost savings were estimated
assuming an average vehicle
occupancy rate of 1.15 (California Department of
Transportation, 2012). Fuel costs are
typically the largest portion of vehicle operating costs, but not
the only ones taken into
consideration in this analysis. Non-fuel costs were also
calculated according to the
California Department of Transportation economic parameters.
Safety Benefits: Safety benefits are being presented as lives
saved, utilizing the value of
the statistical life in 2012 (U.S. Department of Transportation,
2012) together with the
number of fatalities per miles driven from the same year

(National Highway Traffic
Safety Administration, 2012).
Greenhouse gas reductions: Greenhouse gas reductions were
calculated utilizing an EPA
calculator for Greenhouse Gas Equivalencies, estimating the
number of miles driven and
obtaining the total metric tons of CO2 . This number was then
converted to U.S. Tons to
be able to monetize the emissions accordingly (California
Department of Transportation).
Ticket revenue: Assuming the City of California would have
ownership of the
Hyperloop, ticket revenue would be of benefit for the project.
One-way ticket prices were
suggested to be $20 per person on the Hyperloop preliminary
study (Musk, 2013).
Costs
Construction costs of the project are outlined on the
Hyperloop preliminary study,
totaling $7.5 billion dollars (Musk, 2013). Maintenance and
operating costs were

calculated utilizing indirect market methods, in this case
extrapolating data from
maintenance and operation costs of the California High Speed
Rail System, the closest
type of transportation to the Hyperloop in actuality (Parsons
Brinckerhoff, 2012).
Results
After monetizing impacts of the Hyperloop (Table 1) we
obtained a total of the
project benefits ($2,717,267,692) and the project costs
($7,584,407,620). However, this
will only provide us raw data that needs to undergo a sensitivity
analysis. When we are
looking at the raw data from Table 1 we are not accounting for
the service life of the
project, nor any discount rate or annual growth rate of benefits.
Table 1. Monetized Benefits and Costs of the Hyperloop as a
new mode of
transportation in California

Project Benefits
Travel time savings $884,477,200
Vehicle cost savings $1,252,926,757
Safety Benefits (Lives saved) $255,510,190
Greenhouse gas reductions $163,403,545
Parking costs savings $10,950,000
Ticket revenue $150,000,000
Total Benefits $2,717,267,692
Project Costs
Construction $7,500,000,000
Operations $8,207,620
Maintenance $$76,200,000
Total Costs 7,584,407,620
Sensitivity Analysis - The real discount rate this analysis uses
for evaluating the costs and
benefits of the Hyperloop project is 4.0 percent. This 4.0
percent discount rate is
consistent with the Cal-B/C Framework (California Department

of Transportation, 2012).
The annual growth rate of benefits (4.7 percent) was
extrapolated from the
regional/commuter airline industry, which also provides
services for faster intercity
traveling (U.S. Department of Transportation, 2000). The
Hyperloop system comprising
all infrastructure, mechanical, electrical, and software
components will be designed so
that it is reliable, durable, and fault tolerant over a service life
of 100 years (Musk, 2013).
Table 2. Assumptions used for the calculation of the NPV of
the Hyperloop as a new
mode of transportation in California.
Assumptions
Annual Discount Rate 0.04%
Annual Growth Rate of Benefits 0.047%
Construction Cost $7,500,000,000
Annual Operations Cost $84,407,620

First Year Benefit $2,717,267,692
Table 3. The Net Present Value of the Hyperloop as a new mode
of transportation in
California
Years
Construction
Cost
Operational
and
Maintenance
Cost
Annual
Benefit
Ticket
Revenue
Annual
NB
PV Annual
NB
0 $7,500,000,000 $0 $0 $0 -$7,500,000,000 -$187,500,000,000

1 $0 $84,407,620 $2,595,289,104 $150,000,000 $2,660,881,484
$66,522,037,103
2 $0 $84,407,620 $2,478,786,155 $150,000,000 $2,544,378,535
$63,609,463,371
3 $0 $84,407,620 $2,367,513,042 $150,000,000 $2,433,105,422
$60,827,635,547
4 $0 $84,407,620 $2,261,234,997 $150,000,000 $2,326,827,377
$58,170,684,425
5 $0 $84,407,620 $2,159,727,791 $150,000,000 $2,225,320,171
$55,633,004,271
6 $0 $84,407,620 $2,062,777,260 $150,000,000 $2,128,369,640
$53,209,240,991
7 $0 $84,407,620 $1,970,178,854 $150,000,000 $2,035,771,234
$50,894,280,838
8 $0 $84,407,620 $1,881,737,205 $150,000,000 $1,947,329,585
$48,683,239,622
9 $0 $84,407,620 $1,797,265,716 $150,000,000 $1,862,858,096
$46,571,452,406
10 $0 $84,407,620 $1,716,586,166 $150,000,000
$1,782,178,546 $44,554,463,660
11 $0 $84,407,620 $1,639,528,335 $150,000,000
$1,705,120,715 $42,628,017,867

12 $0 $84,407,620 $1,565,929,642 $150,000,000
$1,631,522,022 $40,788,050,538
13 $0 $84,407,620 $1,495,634,806 $150,000,000
$1,561,227,186 $39,030,679,641
14 $0 $84,407,620 $1,428,495,516 $150,000,000
$1,494,087,896 $37,352,197,410
15 $0 $84,407,620 $1,364,370,121 $150,000,000
$1,429,962,501 $35,749,062,518
16 $0 $84,407,620 $1,303,123,324 $150,000,000
$1,368,715,704 $34,217,892,612
17 $0 $84,407,620 $1,244,625,907 $150,000,000
$1,310,218,287 $32,755,457,171
18 $0 $84,407,620 $1,188,754,448 $150,000,000
$1,254,346,828 $31,358,670,695
19 $0 $84,407,620 $1,135,391,068 $150,000,000
$1,200,983,448 $30,024,586,190
20 $0 $84,407,620 $1,084,423,178 $150,000,000
$1,150,015,558 $28,750,388,956
21 $0 $84,407,620 $1,035,743,246 $150,000,000
$1,101,335,626 $27,533,390,642
22 $0 $84,407,620 $989,248,563 $150,000,000 $1,054,840,943
$26,371,023,581
23 $0 $84,407,620 $944,841,035 $150,000,000 $1,010,433,415
$25,260,835,365

24 $0 $84,407,620 $902,426,967 $150,000,000 $968,019,347
$24,200,483,678
25 $0 $84,407,620 $861,916,874 $150,000,000 $927,509,254
$23,187,731,351
26 $0 $84,407,620 $823,225,286 $150,000,000 $888,817,666
$22,220,441,641
27 $0 $84,407,620 $786,270,569 $150,000,000 $851,862,949
$21,296,573,722
28 $0 $84,407,620 $750,974,755 $150,000,000 $816,567,135
$20,414,178,385
29 $0 $84,407,620 $717,263,377 $150,000,000 $782,855,757
$19,571,393,917
30 $0 $84,407,620 $685,065,307 $150,000,000 $750,657,687
$18,766,442,181
31 $0 $84,407,620 $654,312,614 $150,000,000 $719,904,994
$17,997,624,859
32 $0 $84,407,620 $624,940,415 $150,000,000 $690,532,795
$17,263,319,872
33 $0 $84,407,620 $596,886,738 $150,000,000 $662,479,118
$16,561,977,954
34 $0 $84,407,620 $570,092,396 $150,000,000 $635,684,776
$15,892,119,390
35 $0 $84,407,620 $544,500,855 $150,000,000 $610,093,235
$15,252,330,885

36 $0 $84,407,620 $520,058,124 $150,000,000 $585,650,504
$14,641,262,589
37 $0 $84,407,620 $496,712,630 $150,000,000 $562,305,010
$14,057,625,249
38 $0 $84,407,620 $474,415,119 $150,000,000 $540,007,499
$13,500,187,484
39 $0 $84,407,620 $453,118,548 $150,000,000 $518,710,928
$12,967,773,190
40 $0 $84,407,620 $432,777,982 $150,000,000 $498,370,362
$12,459,259,061
41 $0 $84,407,620 $413,350,509 $150,000,000 $478,942,889
$11,973,572,214
42 $0 $84,407,620 $394,795,137 $150,000,000 $460,387,517
$11,509,687,927
43 $0 $84,407,620 $377,072,719 $150,000,000 $442,665,099
$11,066,627,482
44 $0 $84,407,620 $360,145,864 $150,000,000 $425,738,244
$10,643,456,092
45 $0 $84,407,620 $343,978,857 $150,000,000 $409,571,237
$10,239,280,935
46 $0 $84,407,620 $328,537,591 $150,000,000 $394,129,971

$9,853,249,266
47 $0 $84,407,620 $313,789,485 $150,000,000 $379,381,865
$9,484,546,621
48 $0 $84,407,620 $299,703,424 $150,000,000 $365,295,804
$9,132,395,098
49 $0 $84,407,620 $286,249,689 $150,000,000 $351,842,069
$8,796,051,714
50 $0 $84,407,620 $273,399,894 $150,000,000 $338,992,274
$8,474,806,839
51 $0 $84,407,620 $261,126,928 $150,000,000 $326,719,308
$8,167,982,699
52 $0 $84,407,620 $249,404,898 $150,000,000 $314,997,278
$7,874,931,944
53 $0 $84,407,620 $238,209,071 $150,000,000 $303,801,451
$7,595,036,285
54 $0 $84,407,620 $227,515,828 $150,000,000 $293,108,208
$7,327,705,188
55 $0 $84,407,620 $217,302,605 $150,000,000 $282,894,985
$7,072,374,627
56 $0 $84,407,620 $207,547,856 $150,000,000 $273,140,236
$6,828,505,896
57 $0 $84,407,620 $198,230,999 $150,000,000 $263,823,379
$6,595,584,472
58 $0 $84,407,620 $189,332,377 $150,000,000 $254,924,757

$6,373,118,929
59 $0 $84,407,620 $180,833,216 $150,000,000 $246,425,596
$6,160,639,900
60 $0 $84,407,620 $172,715,584 $150,000,000 $238,307,964
$5,957,699,090
61 $0 $84,407,620 $164,962,353 $150,000,000 $230,554,733
$5,763,868,325
62 $0 $84,407,620 $157,557,166 $150,000,000 $223,149,546
$5,578,738,655
63 $0 $84,407,620 $150,484,399 $150,000,000 $216,076,779
$5,401,919,485
64 $0 $84,407,620 $143,729,130 $150,000,000 $209,321,510
$5,233,037,757
65 $0 $84,407,620 $137,277,106 $150,000,000 $202,869,486
$5,071,737,157
66 $0 $84,407,620 $131,114,715 $150,000,000 $196,707,095
$4,917,677,368
67 $0 $84,407,620 $125,228,954 $150,000,000 $190,821,334
$4,770,533,347
68 $0 $84,407,620 $119,607,406 $150,000,000 $185,199,786
$4,629,994,645
69 $0 $84,407,620 $114,238,210 $150,000,000 $179,830,590
$4,495,764,748
70 $0 $84,407,620 $109,110,038 $150,000,000 $174,702,418

$4,367,560,454
71 $0 $84,407,620 $104,212,071 $150,000,000 $169,804,451
$4,245,111,270
72 $0 $84,407,620 $99,533,974 $150,000,000 $165,126,354
$4,128,158,851
73 $0 $84,407,620 $95,065,878 $150,000,000 $160,658,258
$4,016,456,444
74 $0 $84,407,620 $90,798,355 $150,000,000 $156,390,735
$3,909,768,377
75 $0 $84,407,620 $86,722,402 $150,000,000 $152,314,782
$3,807,869,555
76 $0 $84,407,620 $82,829,419 $150,000,000 $148,421,799
$3,710,544,987
77 $0 $84,407,620 $79,111,193 $150,000,000 $144,703,573
$3,617,589,335
78 $0 $84,407,620 $75,559,879 $150,000,000 $141,152,259
$3,528,806,477
79 $0 $84,407,620 $72,167,984 $150,000,000 $137,760,364
$3,444,009,096
80 $0 $84,407,620 $68,928,351 $150,000,000 $134,520,731
$3,363,018,283

81 $0 $84,407,620 $65,834,146 $150,000,000 $131,426,526
$3,285,663,161
82 $0 $84,407,620 $62,878,841 $150,000,000 $128,471,221
$3,211,780,523
83 $0 $84,407,620 $60,056,200 $150,000,000 $125,648,580
$3,141,214,488
84 $0 $84,407,620 $57,360,267 $150,000,000 $122,952,647
$3,073,816,175
85 $0 $84,407,620 $54,785,355 $150,000,000 $120,377,735
$3,009,443,382
86 $0 $84,407,620 $52,326,032 $150,000,000 $117,918,412
$2,947,960,295
87 $0 $84,407,620 $49,977,108 $150,000,000 $115,569,488
$2,889,237,193
88 $0 $84,407,620 $47,733,627 $150,000,000 $113,326,007
$2,833,150,181
89 $0 $84,407,620 $45,590,857 $150,000,000 $111,183,237
$2,779,580,924
90 $0 $84,407,620 $43,544,276 $150,000,000 $109,136,656
$2,728,416,400
91 $0 $84,407,620 $41,589,566 $150,000,000 $107,181,946
$2,679,548,659
92 $0 $84,407,620 $39,722,604 $150,000,000 $105,314,984
$2,632,874,600

93 $0 $84,407,620 $37,939,450 $150,000,000 $103,531,830
$2,588,295,746
94 $0 $84,407,620 $36,236,342 $150,000,000 $101,828,722
$2,545,718,045
95 $0 $84,407,620 $34,609,687 $150,000,000 $100,202,067
$2,505,051,663
96 $0 $84,407,620 $33,056,052 $150,000,000 $98,648,432
$2,466,210,802
97 $0 $84,407,620 $31,572,161 $150,000,000 $97,164,541
$2,429,113,513
98 $0 $84,407,620 $30,154,881 $150,000,000 $95,747,261
$2,393,681,528
99 $0 $84,407,620 $28,801,224 $150,000,000 $94,393,604
$2,359,840,090
100 $0 $84,407,620 $27,508,332 $150,000,000 $93,100,712
$2,327,517,800
NPV=$1,407,204,013,830
As we can observe from Table 3 the Net Present Value of the
Hyperloop totals 1.4
Trillion dollars. The NPV is positive, which means that the
benefits of the project
outweigh the costs, and the Hyperloop will pay for itself over
time when we include

social benefits.
Limitations
For the Cost Benefit Analysis of the Hyperloop as a new
mode of transportation in
California we had several limitations. The first one being that a
mode of transportation
like the Hyperloop has never been made. As a consequence of
this, there wasn’t enough
data to monetize items that pertained directly to the Hyperloop.
Some of the data was
extrapolated from the closest similar mode of transportation; the
High Speed Rail
System, specifically the one proposed for the state of California
and also from the
regional/commuter airline industry. Another limitation was the
estimated price for the
one-way tickets of the Hyperloop. The price is suggested on the
Hyperloop Preliminary
Design, but it doesn’t account for the service life of the project
and it doesn’t make any

mention of eventually increasing prices. It also mentions that
with a ticket price of only
$20 per one way trip the construction and operational costs
would be amortized in around
20 years, but looking at Table 3 and taking into account the
revenue of tickets minus the
estimated maintenance and operation costs that amortization
doesn’t seem plausible in
just 20 (twenty) years. We can also observe Figure 1 which
compares annual
accumulative costs, with ticket sales revenue. Annual
accumulative costs were calculated
adding construction costs with maintenance and operational
costs, and this also confirms
the implausibility of the aforementioned statement.
Figure 1. Annual Accumulative Costs and Ticket Sales
Revenues. This figure illustrates
that taking into consideration only ticket sales revenue, the
costs of the project could not

be amortized during the lifespan of the project.
Recommendation
Based on the cost-benefit analysis presented above, the
following is recommended.
The outcome of the analyzed project or decision should be to
pursue the construction of
the Hyperloop in the State of California, specifically where it
would connect the corridor
of San Francisco, CA and Los Angeles, CA. Our results show
that the Hyperloop would
not only be able to shorten the amount of time spent driving
between the 2 (two) cities,
but it would also reduce vehicle related costs and greenhouse
gas emissions. This last one
is not only beneficial for the residents of California, but for the
planet as a whole. Finally,
the construction of the Hyperloop is also recommended because
of its long service life,
and intergenerational impact.

References
California Department of Transportation. Life-Cycle Benefit-
Cost Analysis Economic
Parameters 2012. Internet site:

http://www.dot.ca.gov/hq/tpp/offices/eab/benefit_cost/LCBCA-
economic_parameters.html (Accessed July 18, 2015b).
California High-Speed Rail Authority. Revised 2012 Business
Plan, Chapter 6:
Operating and Maintenance Costs. Internet site:
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h6_OpMaintCosts.pdf (A
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California High-Speed Rail Authority, Brinckerhoff, P.—
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park-rate-changes-april-6-
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Gasparian, H. and Groves, K. “Which Transportation Model
Better Suits the Needs of
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21st Annual Report on
the Performance of State Highway Systems (1984–2012) (Vol.

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Hess, A.M, Weigley, S. 2013. Ten cities with the worst traffic.
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SFMTA Municipal Transportation Agency. SFpark. Internet
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ns/the_changing_face_of_transportation/html/chapter_02.html
ns/the_changing_face_of_transportation/html/chapter_02.html
MGT 5064 Cost and Economic Analysis – HOMEWORK 8
FALL 2022 Online
Summary and Critique Papers (40 points)
Due: Tuesday, November 1 before 11:59 PM Eastern Time
Go to CANVAS, then go to the Files tab – SAMPLE CBA
PROJECTS folder, choose and read two student CBA projects
from my past classes. Write
two summary and critique papers, one for each
paper/project. Each summary and critique paper is worth 20
points.
CBA Article Critiques
Specific Instructions
1. Submission of summary and critique paper implies that the
work is original and not copied from another paper. Plagiarism
will result to a grade of F.
2. Submit your summary and critique papers as Microsoft Word
documents on CANVAS. Please write your text in good English.
3. Have a title page with the title of the article you are
summarizing, the course name, your name and the instructor’s
name.
4. For each article, give a summary of the CBA. Summarize the
introduction, methods and results sections and outline how the

study was conducted and what the authors found.
5. Include at least two full paragraphs of your critique on the
study's data sets, methods/analysis, results and conclusions.
Include how you would have done the study differently, the
strengths of the study, its weaknesses, important implications,
and any alternative explanations of the results. You can also add
how the study relates to the chapters we have covered in class.
6. Each summary and critique paper should be 2 to 4 double-
spaced pages (not counting the title page). Please use Font:
Times New Roman or Calibri; Size: 12
All work must be typed using Times New Roman or Calibri, 12
points font and must be submitted in
MS Word; work submitted in any other format will
not be graded. Submit/ upload your answers as an attachment
using the CANVAS setting for Homework 8.
1

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