Public bike system-Financial vs economic table & Link impact to valuation Assignment Essay Example

Financial vs. Economic benefits: Canberra Public Bike System

Project Planning Balance Sheet: Public Bike System

	Incidence of Costs and Benefits of the Public Bike System
Stakeholder	Point of view/objective		BENEFITS
Cyclists	Individual/quality of rides	Pre-authorization security deposit: $50 Bike hiring: $3 per day Spotcycle app download: $1	Convenient, healthy and cheap transportation alternative Consistent bike dock availability Saves time (walking on foot and gym) Cost saving for low income earners
Canberra community	Individual/Quality of life	Switching costs: Minimal	Less emissions Greater efficiency and ease of movement Sustainable and healthy option
Canberra Municipal Services	Government/ Availability of various transport services	Equipping and maintaining stations and docks: $1500 per quarter	Reduction of fossil fuel emissions Equality in transportation Growth of cycling mode share
Credit card providers	Company/access to credit facilities	Installation of 3G network in the bikes SIM-card and firmware updates	People can hire bikes from station using credit cards Maintain credit card uptime at 98%
Local public bike system operators	Company/Manage public bike operations	License and registration: $4,500 500 chip mounted bikes @ $500 1000 helmets @$25 Maintenance costs: $1500 per month Total costs: $31,125	Profits from cycling revenues: 300cyclists per day @$3 = $900 Expected Monthly revenue: $27,000 Payback period: Two months
Transport industry	Industry/ Increase sustainability of transport systems	Expansion of complementary infrastructure; 11 stations and 50 docks. Total infrastructural costs: $55,000	Socially sustainable transport systems Increased reach of public transport system Long-term rewards in taxes and levies

License and registration fees: Charges for use of stations and docks by Canberra Municipal Services. Charged at $4,500 (one-off fee) and information available at their offices

Purchase of bikes: 500 bikes will be purchased @ $500* + $4 to install. [www.reidcycles.com.au sells bicycles in Australia at price range of $250-700]. However, the $500 is a Reid X- trail 27.5 convenient for the cyclists and the cost of fitting a chip will be done by Reid cycles company at their cost.

Helmets: Helmet rule applies in Canberra just like Melbourne and Brisbane. Cyclists will purchase own Helmets at shops @$5

Infrastructural costs: The City of Canberra will allocate $55,000 to construct neat structures for docking and the stations for cyclists to hire and return the bikes.

Bike Hiring Costs: Charges per day will be $3 though additional charge per hour accrues for late return

Maintenance costs: The Public Bike System operator will incur an estimated $1500 in repairs and replacements.

Benefits:

Revenues: Number of cyclists × charge per bicycle = 300* × $3 = $900. [It is expected that around 300 people will use the bikes in a day]. The revenue collection company will earn on average $27,000 per month. Using the payback period, the return will be favorable with a payback period of two months (breakeven).

Diversity in transport systems: Diverse means of transport (more than 5 options) brings equality and equity regardless of income and access. Cycling is more close to nature and helps people connect with natural life systems (Amartya, 2000).

Health: Reduction in lifestyle diseases like diabetes and arthritis within the population (no. of hospital admissions with these complications).

Time and space: Cyclists will save time (3hours per day) and space (5m²) in their apartments that accommodates the bicycles.

Efficiency: City transport becomes effective and efficient (over 80% efficiency rates). The train and bus system are also decongested and are socially sustainable.

Savings: The cyclists can save money (15 dollars/day) related to hiring taxis and fueling their own cars.

Emissions: The city of Canberra reduces fossil fuel emission rates (24 pounds of CO₂ emitted per million) as more people tend towards ‘cleaner’ modes of transportation like bicycles. Potential increase in people’s lifespan will be recorded.

Flexibility: Cycling is flexible and can allow the user to get to their destination using the shortest routes.

Economic vs. Financial Impacts

Financial vs economic impacts of Canberra public bike system

	FINANCIAL (Money)	ECONOMIC (Real)
Purchase of 500 chip-mounted bikes	$31,125 (one-off at market price)	Best alternative (Reduction in train and bus passengers) -300 people paying $20 for bus or train
Construction of stations and docks	$55,000 (one-off based on BoQ for the last one year)	More space hived from train or bus or pedestrian foot walks
License and registration	$4,500 (one-off revised in the last one year)
	Market price: $20/hour	Time lost
Maintenance	$1,500/month	Theft/poor quality roads and bikes
Human resource costs	$3/day and $25 (one-off)	Contagious diseases from sharing helmets. Additional health costs.
Benefits
Time and space savings	More than 600 hours cumulative saved/day as well as 5m2 of parking space saved	Greater efficiency input in economic systems More reliable labor force
Reduced fossil fuel emissions	Savings on carbon credits	Best alternative to oil dependent economies
Reduced hospitalization cases	About $200 savings on health insurance plan/cyclist/month	More productive population Increased lifespan
Savings on income	Savings of $15/day	Increased family savings and expenditure on other commodities
New revenue	Increased profits for the public bike operator	Increased employment (company will hire new staff) More tax revenues for the city of Canberra

Financial benefits are those outputs that the project recipients will get in terms of monetary payments. On the other hand, financial costs are resources in form of monetary payments that are made by the owners of the project. At the same time, economic costs are real resources that the project uses and are not available to alternative usage (Folland et al., 2007). Economic benefits are real resources that the project creates and the project owners demonstrate the willingness to pay.

In this project, the financial and economic costs are;

• Bike purchase (financial and economic)

• Construction of stations and docks (financial and economic)

• License and registration (financial)

• Labor (financial and economic)

• Maintenance (financial and economic)

• Human resource costs-hiring (financial and economic)

On the other hand, the financial and economic benefits expected are;

• Time and space savings (financial and economic)

• Reduced fossil fuel emissions (financial and economic)

• Reduced hospitalization cases (financial and economic)

• Savings on income (financial and economic)

• New revenue

From the analysis of costs and benefits as well as financial and economic benefits, the project has more benefits for the people and the government of Canberra. This indicates that the project is worth implementing because there is more to be gained than to be lost.

Valuation techniques

BENEFITS

Savings on income

The cyclists will be able to make savings which include increase in household income. The savings include commute fares for train or bus.

Valuation technique: Differences in daily expenditure on transport and expenditure on the public bike system. On average, the daily expenditure of a commuter or a car owner is as shown in the table below.

Commuters (bus or train)	Commute fare: $20/day	Savings: $20-3 = $17/day
Private car owners	Parking fees: $25/hour Fuel: $30/day Car maintenance: $100/month	Savings per month: $2180-78 = $2102/month
The statistics above are derived from NSW Bureau of Statistics and Analytics -2016

The valuation technique above shows that commuters who go by bus or train on daily basis can save $17/day. The highest level of savings will be made by the private car owners at $2102 per month.

New revenue

The cyclist operator chosen to run the public bike system will generate new revenue through charges per day of the cyclists.

Valuation technique: Payback period = Cost of investment/Annual cash inflows

The cost of investment for the operator will be;

License and registration: $4,500

500 chip mounted bikes: @ $500

1000 helmets: @$25

Administration costs: @20,000

Maintenance costs: $1500 per month

Total costs: $31,125

Annual cash flows: Profits from cycling revenues: 300cyclists per day @$3 = $900

Expected Monthly revenue: $27,000

Payback period: 51,125/27,000 = 1.89 Approximately 2 months

Reduced fossil fuel emissions

The project will see a number of private care owners leave their cars at home for an average 15 days in a month. Assuming 50 cyclists out of the 300 have cars that they left at home, and then it means that the project will have reduced emissions of 50 cars per day.

Valuation technique: Vehicle emissions inventory

According to www.drive.com.au , the 2011 average CO₂ emissions for new car in Australia was 119g/km. Considering the number of cars that will be kept off the road, the emissions will be reduced by 199g/km × 50 vehicles = 9950g/km. This is a substantial amount to control green house gas emissions in Canberra.

Startup costs

The project will require expenditure on purchase of bikes, helmets, installation fees and publicity costs.

Valuation technique: Market prices

The project costs will be spread as shown below.

Bicycle purchase (pre-installed with tracking chip)	500 @$500
License and registration
Administration costs (rent, electricity, water, telephone)
Contingencies

Construction costs

The project will need to construct 11 stations and 50 docks. The government of Canberra will shoulder this responsibility as a key stakeholder.

Valuation technique: Bill of quantities (BoQ)

Iron sheets	1000 @$12
Iron rods/sheet metal
Concrete slabs
Contingencies

The government of Canberra will need about $65,000 to fully construct the stations and docks within the city.

Maintenance costs

The public bike system operator will incur maintenance costs for the bikes and the stations. This does not include operating the stations and docks. The likely costs are repair and replacement of bikes, and purchase of spare parts

Valuation technique: Market prices

The estimated maintenance costs will vary depending on the rate of breakage, loss and damage to the bikes. However, the company will be keen ensuring that the bikes are safely returned and in good conditions. The estimated maintenance costs will be $1,500/month.

References

Amartya, S. 2000). The Discipline of Cost-Benefit Analysis. Journal of Legal Studies, 29(2): 931-952.

BITRE (2016). Lengthy commutes in Australia, Report 144, Canberra (based on NSW Bureau of Statistics and Analytics Household Travel Survey, 2008-2013).

Folland, S., Goodman, A. & Miron, S. (2007). The Economics of Heath and Health Care (Fifth ed.). New Jersey: Pearson Prentice Hall.