Question 1 The municipality is planning a new expansion for its LRT mass transport system. The total project budget is estimated to be $540,000,000 and is to allocated on 6 equal payments of $90,000,000 each (Payment 1 before commencement (now), Payments 2-6 at the end of years 1, 2, 3, 4, and when the construction is done by the end of year 5). The feasibility assessment of this project will consider all cash flow items up to 25 years after construction. This project is expected to generate benefits for the municipality valued as $32,000,000 per year by reducing travel times, congestion, and air pollution. It will also generate fare revenues of $1,500,000 per year. The Operation and Maintenance (O&M) costs for the proposed LRT is expected to be $9,500,000 per year. ** The revenues in terms of toll fares are to be treated as negative costs not as benefits, i.e., there is no direct benefit to the society by charging the commuters. If the social discount rate for this project is chosen to be 8%. A] Draw a cash flow diagram for 30 years. B] Calculate the benefit/cost ratio of this project and comment on its feasibility. CJ if the feasibility assessment period is changed to 100 years after construction, how would that impact the project's feasibility.
Question 1 The municipality is planning a new expansion for its LRT mass transport system. The total project budget is estimated to be $540,000,000 and is to allocated on 6 equal payments of $90,000,000 each (Payment 1 before commencement (now), Payments 2-6 at the end of years 1, 2, 3, 4, and when the construction is done by the end of year 5). The feasibility assessment of this project will consider all cash flow items up to 25 years after construction. This project is expected to generate benefits for the municipality valued as $32,000,000 per year by reducing travel times, congestion, and air pollution. It will also generate fare revenues of $1,500,000 per year. The Operation and Maintenance (O&M) costs for the proposed LRT is expected to be $9,500,000 per year. ** The revenues in terms of toll fares are to be treated as negative costs not as benefits, i.e., there is no direct benefit to the society by charging the commuters. If the social discount rate for this project is chosen to be 8%. A] Draw a cash flow diagram for 30 years. B] Calculate the benefit/cost ratio of this project and comment on its feasibility. CJ if the feasibility assessment period is changed to 100 years after construction, how would that impact the project's feasibility.
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
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![Question 1
The municipality is planning a new expansion for its LRT mass transport system. The total project budget
is estimated to be S540,000,000 and is to allocated on 6 equal payments of $90,000,000 each (Payment 1
before commencement (now), Payments 2-6 at the end of years 1, 2, 3, 4, and when the construction is
done by the end of year 5). The feasibility assessment of this project will consider all cash flow items up
to 25 years after construction. This project is expected to generate benefits for the municipality valued as
$32,000,000 per year by reducing travel times, congestion, and air pollution. It will also generate fare
revenues of $1,500,000 per year. The Operation and Maintenance (O&M) costs for the proposed LRT is
expected to be $9,500,000 per year.
** The revenues in tems of toll fares are to be treated as negative costs not as benefits, i.e., there is no
direct benefit to the society by charging the commuters.
If the social discount rate for this project is chosen to be 8%.
AJ Draw a cash flow diagram for 30 years.
B] Calculate the benefit/cost ratio of this project and comment on its feasibility.
C if the feasibility assessment period is changed to 100 years after construction, how would that
impact the project's feasibility.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc9133870-6329-47fc-8646-3a7c388192b7%2Fdd9bbd08-7ad2-437b-8079-9a4d6af8883d%2F6r0ytym_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 1
The municipality is planning a new expansion for its LRT mass transport system. The total project budget
is estimated to be S540,000,000 and is to allocated on 6 equal payments of $90,000,000 each (Payment 1
before commencement (now), Payments 2-6 at the end of years 1, 2, 3, 4, and when the construction is
done by the end of year 5). The feasibility assessment of this project will consider all cash flow items up
to 25 years after construction. This project is expected to generate benefits for the municipality valued as
$32,000,000 per year by reducing travel times, congestion, and air pollution. It will also generate fare
revenues of $1,500,000 per year. The Operation and Maintenance (O&M) costs for the proposed LRT is
expected to be $9,500,000 per year.
** The revenues in tems of toll fares are to be treated as negative costs not as benefits, i.e., there is no
direct benefit to the society by charging the commuters.
If the social discount rate for this project is chosen to be 8%.
AJ Draw a cash flow diagram for 30 years.
B] Calculate the benefit/cost ratio of this project and comment on its feasibility.
C if the feasibility assessment period is changed to 100 years after construction, how would that
impact the project's feasibility.
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