You are a member of a small specialised economics consultancy, ECO5 Ltd. Most of your clients
are in the construction and property sectors in the built environment sectors in your country. The
client base is interested in the economic rationale behind the decisions being made by competitors
and public sector bodies. ECO5 Ltd has regular briefing sessions with clients to advise them
ECO5 Ltd has been contacted by Newbuild plc, a large construction firm which is a major investor in
urban areas. Newbuild plc is proposing to work in partnership with a local authority and a housing
association to build a community of 400 modular houses, 100 of which will be affordable homes, on
the site of an old hospital. The size of the new community means that there will be a need for public
services e.g. a school and a medical centre.
Newbuild plc has asked ECO5 Ltd to write a report on the proposed project. The report will help
Newbuild plc’s management to understand the processes involved in appraising a project of this
type; it will analyse the financial and non-financial costs and benefits, and will arrive at a supported
conclusion. Newbuild plc has requested that your report should include examples which will focus
attention on this area of investment.
You may select an area for the location of the above proposal.
Write a report to Newbuild plc which appraises the proposed house building project from both a
financial and a non-financial point of view, bearing in mind the varying objectives of the
counterparties to the partnership. Your report should show how economists would approach the
investment decision and the reasoning behind their approach.
The report should include the following:
• An explanation of and comparison between time-based and non time-based capital
investment appraisal techniques;
• A discussion of how a discount rate is chosen in the case of time-based techniques;
• An analysis of the rationale for taking a welfare approach to the project;
• An explanation of the meaning of externalities and an analysis of the process by which they
• An analysis of how the proposed project might fit into an urban growth model (e.g. Hoyt);
• An evaluation of the forecasts made by urban growth models concerning the Newbuild