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 bemefits of the runway extension have been estimated as follows: Rental receipts from airlines leasing space at the facility $325,000 $65,000 Airport tax charged to passengers $50,000 $50,000 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 bemefits of the runway extension have been estimated as follows: Rental receipts from airlines leasing space at the facility $325,000 $65,000 Airport tax charged to passengers $50,000 $50,000 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.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 5MAD: Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to...

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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.
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Aerotron Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the filtration system is not purchased, Aerotron Electronics will have to pay Bay City $12,000 per year for water purification. If the system is purchased, no water purification from Bay City will be needed. Aerotron Electronics must borrow half of the purchase price, but it cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8% compounded annually. Aerotron Electronics’ MARR is 10% compounded annually. Solve, a. What is the annual worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on annual worth? c. Should…