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26 The value of this project cannot be analyzed strictly in terms of economics since it provides many benefits in the way of tour orientation center and areas for administrative and training offices which allow programmatic rather than financial return, and since the benefits of the new dining facilities in terms of serving our staff, public, and Associates are in part intangible but important. It can be measured, however, that the application of $1,900,000 of private funds to the West Court program will cost us in future years the interest which we would otherwise receive. This loss in interest, calculated at an assumed 8% rate, would amount to $152,000 per year. During the ten-year lease period we would expect to recover this amount as follows: Concession income from restaurant:- $1,500,000 sales X 15% fee = $ 225,000/yr. Less required for loan repayment - [[underline]] 170,000 [[/underline]] [[difference]] $ 55,000 Add expected add'l Museum Shop profit from improved Shop facilities [[underline]]$ 100,000 [[underline]] Total increase in concession and shop income $ 155,000/yr. Deduct loss of interest income [[underline]] 152,000[[/underline]] Net income during 10-year contract period $ 3,000/yr. At the end of the 10-year contract period Smithsonian should receive a large financial net benefit from the project, particularly as restaurant sales by then should be substantially higher (assume $2,000,000 per year-- about equal to those in NMHT restaurant). The increased benefit would be as follows: Restaurant ($2 million sales per year @ 18% fee) $ 360,000/yr. Additional profit from new Museum Shop [[underline]] 100,000 [[/underline]] Less continued loss of interest on $1,900,000 @ 8% [[underline]]$ 152,000 [[/underline]] Net gain in income end of contract period $ 308,000/yr. Thus, despite the increased projected cost of this project, it appears that we may conservatively estimate that we will be able to handle the project from our private funds, even though it may restrict us somewhat for the next year or two from transferring monies to our Endowment Funds and perhaps to other worthy projects. The expected ultimate financial return from the project seems worthwhile, especially when added to the other important intangible benefits to be gained. The latter are outlined in detail in a letter from the Museum Director (attached). To obtain these benefits for the Museum, to enable us to serve the Bicentennial visitors adequately and to avoid still further escalation of construction costs, therefore, we plan to proceed with the completion of the project as planned. [[signed]] TW [[/signed]] T. Ames Wheeler Treasurer Attachments 1/21/75
