2.) The city of Bugnussle is considering exceeding the runways of its municipal
ID: 1221036 • Letter: 2
Question
2.) The city of Bugnussle is considering exceeding the runways of its municipal Airport so that commercial jets can use the facility. The land necessary for the runway extension is currently farmland which 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. 2.) The city of Bugnussle is considering exceeding the runways of its municipal Airport so that commercial jets can use the facility. The land necessary for the runway extension is currently farmland which 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.Explanation / Answer
Answer:
The study period is: 20 years
Interest rate is: 10%
Annual benefit is: $490,000
Conventional Benefit and Cost using Present Worth:
B/C = PW(B)/[I + PW (O&M)]
B/C = 490000(P/A,10%,20)/[1200000-197500(P/A,10%,20)] = 1.44
Modified Benefit and Cost using Present Worth:
B/C = [PW (B) – PW (O&M]/I
B/C=[490,000(P/A,10%,20)-197500(P/A,10%,20)]/1200000 =2.07
Conventional Benefit and Cost using AW:
B/C = AW(B)/[CR + AW (O&M)]
B/C = $490,000/[$1,200,000 (A/P, 10%, 20) + $197,500] = 1.448
Modified Benefit and Cost using AW:
B/C = [AW (B) – AW (O&M]/CR
B/C = [$490,000 + $197,500]/$1,200,000 (A/P, 10%, 20) = 2.075
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