An Analysis of the Purchase of the Plum Creek Water System in Kyle, Texas
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The purpose of this research is to examine the possibility of the purchase of the Plum Creek water system by the City of Kyle, Texas. The initial purpose for this research was to perform cost-benefit analysis on the purchase of the Plum Creek water system by the City of Kyle; however the purchase price was not available. Without the initial cost of the water system it is impossible to calculate a single net present value to determine whether the purchase is economically efficient. Instead this analysis uses different population growth and discount rate assumptions to calculate potential purchase prices for the water system at approximate breakeven points (net present value equals zero), then uses the estimated purchase prices to discuss the feasibility of Kyle purchasing the Plum Creek water system. Since the actual purchase price is not available the results do not indicate whether or not the system should be purchased instead the results provide an estimate of the economic value of the water system under different growth assumptions and discount rate scenarios. The least conservative estimate for the value of the Plum Creek water system $15,946,476, occurs at the growth assumption for the years 2002-06, with 2.78 persons per household discounted at 3%. The most conservative estimate for the value of the Plum Creek water system $7,637,335, occurs at the growth assumption for the years 2007-08 with 3.57 persons per household discounted at 7%. Given the location along the Interstate 35 corridor between Austin and San Antonio the City of Kyle is likely to grow faster that it did during 2007-2008. The estimate for the value of the Plum Creek water system using the growth that occurred during the years 2005-2008 with 3.25 persons per household present a more likely scenario. The purchase prices for this growth scenario range from $9 million to $12 million. For a city size of Kyle that is just beginning to develop, the purchase of the Plum Creek water system under this assumption is feasible.