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- 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 (shown): 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 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…Suppose a team operates in a stadium with 75,000 capacity and currently charges $85 per ticket, and plays 10 games a seasons to a sell out crowd. The proposal is to build a new stadium, at a cost of $600 million. Assume that construction would require $200 million to be spent immediately and $200 million each in years 1 and 2. If the new stadium is not built, the present value of extra maintenance costs for the old stadium is $200 million. The new stadium will reduce capacity to 55,000 and has a useful life of 25 years from completion. Assume that additional capacity is sold out, that the ticket price is increased to $150. With a discount rate of 5%, what is the net present value of the stadium investment if the new stadium ticket prices grow at 2% per year while in the old stadium ticket prices would grow at 1% per year ? A) 99.05 million B) 15.88 million C) 125.42 million D) 428.34 million
- Suppose a team operates in a stadium with 75,000 capacity and currently charges $85 per ticket, and plays 10 games a seasons to a sell out crowd. The proposal is to build a new stadium, at a cost of $600 million. Assume that construction would require $200 million to be spent immediately and $200 million each in years 1 and 2. If the new stadium is not built, the present value of extra maintenance costs for the old stadium is $200 million. The new stadium will reduce capacity to 55,000 and has a useful life of 25 years from completion. Assume that additional capacity is sold out, that the ticket price is increased to $150. What is the present value of the new arena investment if the discount rate is 0.1%? A) 68.75 million B) 35.73 million C) 62.39 million D) 10.72 million8. A nuclear power company is deciding whether tobuild a nuclear power plant at Diablo Canyon or atRoy Rogers City. The cost of building the powerplant is $70 million at Diablo and $95 million atRoy Rogers City. If the company builds at Diablo,however, and an earthquake occurs at Diablo duringthe next five years, construction will be terminatedand the company will lose $40 million (and will stillhave to build a power plant at Roy Rogers City).Without further expert information the companybelieves there is a 10% chance that an earthquakewill occur, at Diablo during the next five years. For$1.5 million, a geologist can be hired to analyze thefault structure at Diablo Canyon. She will predicteither that an earthquake will occur or that an earthquake will not occur. The geologist’s past recordindicates that she will predict an earthquake withprobability 0.90 if an earthquake will occur, andshe will predict no earthquake with probability 0.80if an earthquake will not occur. Should the…The Waterloo Region Municipality plans to spend $272,500,000 for the installation of a light rail train service. Annual Maintenance and Operating costs are estimated at $3,025,000 per year. The installation of the light rail train service will reduce laneways for cars, reduce the number of parking spots, and disrupt local businesses during the construction phase. As a result, the dis-benefits of the light rail train service is estimated to be $1, 397, 500 per year. The lifetime of the rail service is indefinite and the cost of borrowing money for the Waterloo Region Municipality is 3.00% per year. What is the minimum annual benefit that the light rail train service must achieve in order to be a project worth pursuing?
- 1. The Luna Corporation is trying to decide if they should purchase a Truck for hauling material which costs $625,400. The Truck will require $30,600 of working capital and major maintenance in years 3, year 5, and year 7. The major maintenance will cost $50,000 in years 3 and 5 and $65,000 in years 7. The truck will increase the net income by $185,750 in years 1 through 4, and $91,250 in years 5 through 7. At the end of year 7, the company expects to sell the truck for 5% of the cost that they paid for it. Calculate the net present value of the Truck using a 10% rate of return. Show your work and indicate if the Luna Corporation should purchase the Truck. PLEASE PUT IN SIMPLEST FORMFormer Green Bay Packers defensive tackle, Don Davey, is considering opening a Firehouse Sub Shop in Wauwatosa, Wisconsin. The new Fireside Sub Shop will require new sandwich-grilling equipment costing $598,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The grilling equipment will be salvaged for $181,000 at the end of the project. The Sub Shop project requires an initial investment of $42,000 in net working capital, which will be recovered at the end of the project. The tax rate is 35%. What is the Firehouse Sub Shop project’s IRR if it is expected to generate an annual operating cash flow of $176,600? a. 13.24% b. 18.39% c. 18.48% d. 16.87% e. 15.64%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?
- An engineer is working on the layout of a new research and experimentation facility. Two plant operators will be required. If,however, an additional $100,000 of instrumentation and remote controls were added, the plant could be run by a single operator. The total before-tax cost of each plant operator is projected to be $35,000 per year. The instrumentation and controls will be depreciated by means of the modified accelerated cost recovery system (MACRS). If this corporation (22% combined corporate tax rate) invests in the additional instrumentation and controls, how long will it take for the after-tax benefits to equal the $100,000 cost? In other words, what is the after-tax payback period?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.Homecraft Stores (HSI), which operates a chain of retail warehouse-type stores, is considering opening a new store in the Tampa area. The store itself will cost $7,000,000 to build. In addition, fixtures for the store are expected to cost $700,000, and installation of the fixtures is estimated to cost another $50,000. Initial net working capital (primarily due to inventory) is expected to be $600,000. HSI plans to build the Tampa store on land it purchased five years ago for $200,000. The land is presently worth $500,000 and is expected to remain at $500,000 while the store is being built. Calculate the net investment for the proposed Tampa store.