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'NOV-27-02 WED 03:50 PM FAX: PAGE 3 <br /> The project costs arc as follows: <br /> Construction(as per Leaf Eng.) $315,685 <br /> Legal & Engineering $10,000-20,000 <br /> Land $800,900 <br /> Total (low est.) $1,125,685 <br /> Borrowing money from CWCB @ 2.75%, annual payments for a 30 year note would be <br /> $55,591. Interest alone in the first year would be$30,965. <br /> Considering construction, legal,and engineering costs only, annual payments for a 30 <br /> year note would be $16,084. Interest alone in the first year would be$8,956. <br /> As shareholders begin to pay off the loan,the equity would likely have a higher <br /> opportunity cost than the 2.75%. At 5.5%,the opportunity cost of value tied up in <br /> construction costs, legal, &engineering fees alone would be$17,912 annually. Including <br /> the land, the opportunity cost would be just under$62,000 annually. <br /> At face value, the project benefits will cover less than 2/3 of the opportunity cost of the <br /> capital invested in the proposed project in the most optimistic scenario, and only about <br /> 1/6 in the most realistic case. If the land were available at no cost,the project benefits <br /> would offset the opportunity cost of the other costs by$1,000 to $10,000 annually <br /> depending on opportunity costs faced. <br /> Bottom line: The land price of$800,000 makes this project prohibitively expensive to <br /> pay its own way given the face-value assumptions. Any land price over$150,000(or <br /> even much less than that) likely renders the project financially infeasible at face-value. <br /> Nuances Beyond Face Value <br /> It appears that there are few opportunities to cut the cost of construction. The only <br /> significant cost savings seems to be through the negotiated land price. However, as noted <br /> above, the breakeven point in the face value analysis is likely around 1/6 the current <br /> asking price_ It is not expected that there is this much room for negotiation. <br /> The only remaining area that could shift the financial desirability of this project for the <br /> ditch would be to increase the benefits. The only way this seems possible is to create a <br /> right that can be marketed to a higher valued use (e.g. municipalities). Appropriating <br /> new waters would generate a right that is so junior that it is not likely to eventually garner <br /> the price needed to offset the cost of the project. If the current unused early right could <br /> be changed to allow for storage/recharge with a 191.0 priority, the story could be very <br /> much different. <br /> At the outset, we expected that the single largest benefit that could arise from this project <br /> would he the perfection of the early water right that FIDCO has not been able to utilize. <br /> If the right could he changed,perfection of this right would create a high-valued, <br /> transferable right. However, the water court will not likely allow the change of the early <br />