Required information [The following information applies to the questions display

Question

Required information

[The following information applies to the questions displayed below.]

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.

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 $120,000. The old snowplow could be sold now for $12,000. The new, larger plow will cost $8,000 more in annual operating costs. Second, the County Board of Representatives believes that the proposed long runway, and the major jet service it will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $80,000 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 14 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 14 percent. The County Board of Representatives believes that if the county conducts a promotional effort costing $28,000 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 14 percent? (Round intermediate and final answer to the nearest dollar amount.)

1. what is the require increase in tax revenue in $

Cost of acquiring additional land for runway $ 64,500 Cost of runway construction 280,000 Cost of extending perimeter fence 24,535 Cost of runway lights 33,000 Annual cost of maintaining new runway 16,500 Annual incremental revenue from landing fees 27,500

Explanation / Answer

As NPV is negative project should not be accepted.

a.       Compute the net initial total outlay for the long runway. Cost of acquiring land 64500 Cost of runway construction 280000 Cost of extending perimeter fence 24535 Cost of runway lights 33000 Cost of new snow plow 120000 Less:Sub: Sale of old snowplow -12000 Net initial outlay for the long runway 510035 b.      Compute the annual net cost or benefit of the runway. Add: Annual incremental revenue from landing fees: 27500 Add: Additional tax revenue for the county 80000 Sub: Annual cost of maintaining new runway: -16500 Sub: Extra annual operating costs of new plow -8000 Annual benefit of the runway 83000 c.       Prepare a net present value analysis of the proposed new long runway. Net initial outlay for the long runway 510035 Annual benefit of the runway 83000 Horizon timeline for project 10 County hurdle rate for capital projects 14% Net present value -77097.4 IRR 10.00%

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.