A proposed new bus route is expected to require 12 new buses and to operate a to

Question

A proposed new bus route is expected to require 12 new buses and to operate a total of 720,0000 vehicle miles per(for all 12 buses) and 48,000 vehicle- hours per hours (total for all 12 buses) Buses cost $550,000 each, have a 10 year life, $30-000 each. Operating costs include labor costs vehicle-mile and $75 00 Per vehicle-hour, maintenance costs at $1 96 per cycle cost $1 65 per vehicle-mile. (A) Calculate the life annual interest of adding this route and operating it for 10 years using an,f the bus route saves $20 per rider per trip and the the for 250 days per year, what is What the for the 10 year life using 10% annual interest rate? (C) cost for this new bus route and (D) Should the bus route be implemented?

Explanation / Answer

Details Amt   Vehicle miles per year         720,000.00 Vehicle hrs per year            48,000.00 Yearly labor cost @$75 per vehicle hour=    3,600,000.00 Yearly Maintenance cost @$1.96 per veh mile=    1,411,200.00 Yearly fuel,tire cost @$1.65 per veh mile=    1,188,000.00 Total Operating cost per year    6,199,200.00 A Life cycle cost Bus Cost Salvage   Operating Cost Total Cost PV factor @10% PV of Net Costs Years Year 0    6,600,000.00      6,600,000          1.000       6,600,000 Year 1       6,199,200      6,199,200          0.909       5,635,636 Year 2       6,199,200      6,199,200          0.826       5,123,306 Year 3       6,199,200      6,199,200          0.751       4,657,551 Year 4       6,199,200      6,199,200          0.683       4,234,137 Year 5       6,199,200      6,199,200          0.621       3,849,215 Year 6       6,199,200      6,199,200          0.564       3,499,287 Year 7       6,199,200      6,199,200          0.513       3,181,170 Year 8       6,199,200      6,199,200          0.467       2,891,973 Year 9       6,199,200      6,199,200          0.424       2,629,066 Year 10         (360,000)       6,199,200      5,839,200          0.386       2,251,264 Sum Of PV of costs    44,552,605 So Life cycle cost is = $   44,552,605 B Saving per rider per trip=                        20 No of riders per day                        360 Savings per day=                  7,200 Yearly saving @250 days operation per year=          1,800,000 PV of benefits Years Yearly benefit PV factor @10% PV of benefits Year 1          1,800,000                0.909       1,636,364 Year 2          1,800,000                0.826       1,487,603 Year 3          1,800,000                0.751       1,352,367 Year 4          1,800,000                0.683       1,229,424 Year 5          1,800,000                0.621       1,117,658 Year 6          1,800,000                0.564       1,016,053 Year 7          1,800,000                0.513          923,685 Year 8          1,800,000                0.467          839,713 Year 9          1,800,000                0.424          763,376 Year 10          1,800,000                0.386          693,978    11,060,221 So PV of benefits =$11,060,221 C   Benefit to cost ratio= 11060221/44552605=                0.2483 D As the PV of benefits is much lower than the PV of costs , the bus route should not be implemented.

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