Chapter 1, Problem 6P

Washington County’s Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, long runway would enable the airport to handle the midsize jets used on many domestic flights. Data pertinent to the board’s decision appear below.     Cost of acquiring additional land for runway $ 70,000   Cost of runway construction   200,000   Cost of extending perimeter fence   29,840   Cost of runway lights   39,600   Annual cost of maintaining new runway   28,000   Annual incremental revenue from landing fees   40,000      In addition to the preceding data, two other facts are relevant to the decision. First, a longer runway will require a new snowplow, which will cost $100,000. The old snowplow could be sold now for $10,000. The new, larger plow will cost $12,000 more in annual operating costs. Second, the County Board of Representatives believes that the…

A city that operates automobile parking facilities is evaluating a proposal toerect and operate a structure for parking in its downtown area. Three designs for a facility to be built on available sites have been identified as follows, where all dollar figures are in thousands:                                                          At the end of the estimated service life, the selected facility would be torn down and the land would be sold. It is estimated that the proceeds from the resale of the land will be equal to the cost of clearing the site. If the city's interest rate is known to be 10%, which design alternative would be selected on the basis of the benefit-cost criterion?

A state’s department of transportation (DOT) is considering whether to buy or lease an RFID tracking system for asphalt, concrete, and gravel trucks to be used in road paving. Purchasing the RFID system will cost $5000 per truck, with a salvage value of $1500 after the RFID system’s useful life of 5 years. However, the DOT considering this purchase is also looking at leasing this same RFID system for an annual payment of $3500, which includes a full replacement warranty. Assuming that the MARR is 11% and on the basis of an internal rate of return analysis, which alternative would you advise the DOT to consider? Analyze incrementally using rate of return. The number of trucks used in a season varies from 5000 to 7500. Does this matter?

The city engineer and economic development directors are evaluating two sites for construction of a multipurpose sports arena. The sites are downtown (DT) and southwest (SW) of the metropolitan area. The city already owns enough land at the DT site; however, the land for a parking garage will cost $1 million, and construction costs will be $10 million for the parking garage, infrastructure relocation, and drainage. The SW site is 30 km from downtown, but the land will be donated by a developer who knows that an arena at this site will dramatically increase the value of the remainder of his land holdings. Because of its centralized location, there will be greater attendance at most of the events held at the DT site. This will result in more revenue to vendors and local merchants in the amount of $700,000 per year. Additionally, the average attendee will not have to travel as far, resulting in annual benefits of $400,000 per year. All other costs and revenues are expected to be the same…

The city council is considering a proposal about purchasing a new landfill site. Both the current landfill and new landfill would be usable for the next 10 years. The purchase price is $279,000 and the preparatory work will cost $77,800. It is estimated that the new landfill will cost $51,000 less per year to operate than the current landfill.   Assume a hurdle rate of 8%. Ignore tax impacts.   Required: Calculate the net present value of the new landfill. Should the city council approve the project on financial grounds? Calculate the internal rate of return for the new landfill. Should the city council approve the project on financial grounds?

A real estate investor has the opportunity to purchase land currently zoned as residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:     State of Nature   Rezoning Approved Rezoning Not Approved Decision Alternative s1 s2 Purchase, d1 600 -200 Do not purchase, d2 0 0     (a) If the probability that the rezoning will be approved is 0.5, what decision is recommended?   Recommended Decision:        What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000.   $

A project is being considered by the Tennessee Department of Transportation to replace an aging bridge across the Cumberland River on a state highway. The existing two-lane bridge is expensive to maintain and creates a traffic bottleneck because the state highway is four lanes wide on either side of the bridge. The new bridge can be constructed at a cost of $300,000, and estimated annual maintenance costs are $10,000. The existing bridge has annual maintenance costs of $18,500. The annual benefit of the new four-lane bridge to motorists, due to the removal ofthe traffic bottleneck, has been estimated to be $25,000. Conduct a B–C analysis, using aMARR of 8% and a study period of 25 years, to determine whether the new bridge should be constructed.

A project is being considered by the Tennessee Department of Transportation to replace an aging bridge across the Cumberland River on a state highway. The existing two-lane bridge is expensive to maintain and creates a traffic bottleneck because the state highway is four lanes wide on either side of the bridge. The new bridge can be constructed at a cost of $300,000, and estimated annual maintenance costs are $10,000. The existing bridge has annual maintenance costs of $18,500. The annual benefit of the new four-lane bridge to motorists, due to the removal of the traffic bottleneck, has been estimated to be $25,000. Conduct a B-C analysis, using a MARR of 8% and a study period of 25 years, to determine whether the new bridge should be constructed.

A large land-grant university that is currently facing severe parking problems on its campus is considering constructing parking decks off campus. A shuttle service could pick up students at the off campus parking deck and transport them to various locations on campus. The university would charge a small fee for each shuttle ride, and the students could be quickly and economically transported to their classes. The funds raised by the shuttle would be used to pay for trolleys, which cost about $170,000 each. Each trolley has a 12-year service life, with an estimated salvage value of $12,000. To operate each trolley, additional expenses will be incurred, as given in the table below. If students pay 10 cents for each ride, determine the annual ridership per trolley (number of shuttle rides per year) required to justify the shuttle project, assuming an interest rate of 6%. Click the icon to view the additional expenses. Click the icon to view the interest factors for discrete compounding…