Required information The following information applies to the questions displaye
ID: 2341009 • Letter: R
Question
Required information The following information applies to the questions displayed belowj Washington County's Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, long runway would enable the airport to handle the midsize jets used on many domestic flights. Data pertinent to the board's decision appear below. Cost of acquiring additional land for runway Cost of runway construction Cost of exte Cost of runway lights Annual cost of maintaining new runway Annual incremental revenue from landing fees S 69,000 230,000 16,967 36,000 18,000 35, 000 perimeter fence In addition to the preceding data, two other facts are relevant to the decision. First, a longer runway will require a new snowplow, which will cost $140,000. The old snowplow could be sold now for $13,500. The new, larger plow will cost $10,000 more in annual operating costs. Second, the County Board of Representatives believes that the proposed long runway, and the major jet service t will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $92,000 per year in additional tax revenue for the county. In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county's hurdle rate for capital projects is 18 percent. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county's hurdle rate for capital projects is 18 percent. The County Board of Representatives believes that if the county conducts a promotional effort costing $23,000 per year, the proposed long runway will result in substantially greater economic development than was projected originally. However, the board is uncertain about the actual increase in county tax revenue that will result. Required Suppose the board builds the long runway and conducts the promotional campaign. What would the increase in the county's annual tax revenue need to be in order for the proposed runway's internal rate of return to equal the county's hurdle rate of 18 percent? (Round Intermedlate and flnal answer to the nearest dollar amount.)Explanation / Answer
Compute the increase in annual tax revenue required as follows:
Particulars
Amount
Amount
Annual incremental benefit required
$106,468
Add: Annual costs
Promotional campaign
$23,000
Runway maintenance costs
$18,000
Incremental snow plow operating costs
$10,000
Total costs
$51,000
Total annual incremental benefit and annual costs
$157,468
Less: Incremental landing fee revenue
($35,000)
Required increase in tax revenue
$122,468
Notes: Compute annual incremental benefit as follows:
Particulars
Amount
Cost of initial investment:
Cost of additional land
$69,000
Runway construction cost
$230,000
Perimeter fence extension
$16,967
Runway lights
$36,000
Snow plow – new
$140,000
Salvage value of old snow plow
($13,500)
Total initial cost
$478,467
÷ Annuity discount factor @ 18%, 10 Years
4.494
Annual incremental benefit
$106,468
Particulars
Amount
Amount
Annual incremental benefit required
$106,468
Add: Annual costs
Promotional campaign
$23,000
Runway maintenance costs
$18,000
Incremental snow plow operating costs
$10,000
Total costs
$51,000
Total annual incremental benefit and annual costs
$157,468
Less: Incremental landing fee revenue
($35,000)
Required increase in tax revenue
$122,468
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.