A hospital in a large Canadian city is considering a shuttle from their parking

Question

A hospital in a large Canadian city is considering a shuttle from their parking lot to the hospital buildings in order to reduce traffic congestion. The shuttle bus would cost $150,000 and would have a 10 year service life and a salvage value of $20,000. To operate the shuttle bus, the driver would be paid $50,000 / year. We will allow $10,000 per year for fuel and other operating expenses, $5000 per year for maintenance and $6000 per year for insurance. If the hospital visitors pay 50.20 each way for the shuttle and if i=7%, how many paying visitors per year are required per year to break even?

Explanation / Answer

Expense Head Amount Driver $    50,000.00 Fuel $    10,000.00 Operating Expenses $      5,000.00 Insurance $      6,000.00 Depreciation $    13,000.00 Total $    84,000.00 Payment per trip per visitor $               0.20 Number of yearly visits required to break-even $ 420,000.00 If every visitor uses the shuttle for both ways then number of visitors (420000/2) $ 210,000.00 Note 1: Cost of Shuttle Bus $ 150,000.00 Salvage Value $ (20,000.00) Net $ 130,000.00 Service Life 10 Depreciation per year $    13,000.00

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