The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows: $325,000 $65,000 $50,000 $50,000 Rental receipts from airlines leasing space at the facility Airport tax charged to passengers Convenience benefit for residents of Columbia Additional tourism dollars for Columbia Apply the B-C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended

The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows: $325,000 $65,000 $50,000 $50,000 Rental receipts from airlines leasing space at the facility Airport tax charged to passengers Convenience benefit for residents of Columbia Additional tourism dollars for Columbia Apply the B-C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.4IP

See similar textbooks

Similar questions

The city of Oakmont is interested in developing some lake front property into a sports park (picnic facilities, boat docks, swimming area, etc.). A consultant has estimated that the city would need to invest $3 million in this project. In return, the developed property would return $500,000 per year to the city through increased tax revenues and recreational benefits to the public. Whatwould the life of this project need to be in order to be cost-beneficial to the city? The interest rate on municipal bonds is 6% per year.
Suppose the cost of flying a 200-seat commercial airplane is as follows: Crew wages: 35617 AED Service of maintenance personnel and equipment: 16551 AED Cost of a passenger meal (provided complimentary to all passengers onboard): 45 AED Cost of issuing a boarding pass and luggage handling per passenger: 8 AED Just before departure, there are 10 empty seats. Just before departure, what is the minimum ticket price to allow one more passenger into the flight
A company is currently paying its employees$0.56 per mile to drive their own cars on companybusiness. The company is considering supplyingemployees with cars, which would involve purchasing at $25,000 with an estimated three-year life, a netsalvage value of $8,000, taxes and insurance at a costof $1,200 per year, and operating and maintenanceexpenses of $0.30 per mile. If the interest rate is 10%and the company anticipates an employee’s annualtravel to be 30,000 miles, what is the equivalent costper mile (neglecting income taxes)
An integrated, combined cycle power plant produces 285MW of electricity by gasifying coal. The capital investment for the plant is $570 million, spread evenly over two years. The operating life of the plant is expected to be 20 years. Additionally, the plant will operate at full capacity 75% of the time (downtime is 25% of any given year). a. If this plant will make a profit of three cents per kilowatt-hour of electricity sold to the power grid, what is the simple payback period of the plant? Is it a low-risk venture? Tabulate the net cash flow and the cumulative PW. b. What is the IRR for the plant? Is it profitable?
The Department of Energy is proposingnew rules mandating 2 plans to increase efficiency in clothes washer, Plan A increase is expected to add $253.7 to the current price of a new washer machine, while Plan B increase will add $69 to the price of the wasther machine. W the cost for energy is $62 per year with the Plan A in efficiency and $81 per year with Plan B increase, which one of the two proposed plans is more economical on the basis of a future worth analysis at an interest rate of 10% per year? Assume a 15-year life for all washer machine models. Write n the space below the FWA OR FWB then upload the complete solution to moodle.ku.edukw Answer:
The city of Oakmont is interested in developing some lake front property into a sports park (picnic facilities, boat docks, swimming area, etc.). A consultant has estimated that the city would need to invest $3 million in this project. In return, the developed property would return $500,000 per year to the city through increased tax revenues and recreational benefits to the public. What would the life of this project need to be in order to be cost-beneficial to the city? The interest rate on municipal bonds is 4% per year. E Click the icon to view the interest and annuity table for discrete compounding when i= 4% per year. The life of the project needs to be at least years in order to be cost-beneficial to the city. (Round up to the nearest whole number.)
You are weighing the economics of installing a triple-glazed energy efficient window system in your building. The following life cycle costs and savings are provided. The study period is 25 years, and the discount rate is 10%. Is this an economically viable approach based on the Savings-to-Investment Ratio (SIR)? Triple- Glazed Energy Efficient Windows: Window Quantity takeoff: 10000 sf Initial Cost: $100/sf Annual Operating Costs: $2.5/sf Annual Energy Saving: $10/sf
A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $114,000, and it will save an estimated 340,000 kilowatt-hours (kWh) of electric power each year over afive-year period. A kilowatt-hour of electricity costs $0.08. The market value, additional annual operating and maintenance expenses are negligible. What is the benefit-cost ratio of the project if the general inflation rate is 3% per year? The market interest rate = (im) is 22% per year, and the annual savings are expressed in year- zero dollars. Use the benefit-cost method to make a recommendation. The benefit-cost ratio of the system with PW is___---_?
A local government is considering promoting tourism in the city. It will cost$8,000 to develop a plan.111e anticipated annual benefits and costs are as follows:Annual benefits: Increased local income and tax collections $ 125,000Annual support service: Parking lot expansion, restroom. $50,000the patrol car, and street repairIf the city government uses a discount rate of 8% and a study period of fiveyears. is this tourism project justifiable according to the benefit-cost analysis?
A company emits 520 tons of dangerous chemicals annually. It has two options for reducing its emissions. Option 1: the company can spend $32,000 annually on a new filtration system, which will cut its emissions to 120 tons. Option 2: In addition to the filtration system, the company could implement a new recycling technology that will cost $24,000 per year and cut emissions to 30 tons. For each ton of reduced emissions, the company saves $240 . First, use marginal analysis to determine which option will save the company the most money. Then, calculate how much money the company will save and enter it in the box below, rounding your answer to two decimal places if necessary.
1. Two alternative designs are under consideration for a tapered fastening pin. The fastening pins are sold for $0.70 each. Either design will serve equally well and will involve the same material and manufacturing cost except for the lathe and drill operations. Design A will require 12 hours of lathe time and 5 hours of drill time per 1,000 units. Design B will require 7 hours of lathe time and 8 hours of drill time per 1,000 units. The variable operating cost of the lathe, including labor, is $18.60 per hour. The variable operating cost of the drill, including labor, is $16.90 per hour. Finally, there is a sunk cost of $5,000 for Design A and $9,000 for Design B due to obsolete tooling. a. Which design should be adopted if 125,000 units are sold each year? b. What is the annual saving over the other design? 2. A company is analyzing a make-versus-purchase situation for a component used in several products, and the engineering department has developed these data: Option A:…
a) What is the NPV of each project? Which projects should Xia undertake, and how much cash should it retain? b) What is the total value of Xia’s assets today? c) What cash flows will the investors in Xia receive? Based on these cash flows, what is the value of Xia today? d) Suppose Xia pays any unused cash to investors today, rather than investing it. What are the total cash flows to the investors in this case? What is the value of Xia now?