In analyzing the runway proposal the board has decided to

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Reference no: EM13566789

Adams 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 $ 85,500
Cost of runway construction 290,000
Cost of extending perimeter fence 15,437
Cost of runway lights 47,000
Annual cost of maintaining new runway 23,500
Annual incremental revenue from landing fees 62,500

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 $190,000. The old snowplow could be sold now for $19,000. The new, larger plow will cost $17,500 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 $114,000 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 19 percent.

1. Compute the initial cost of the investment in the long runway.
Initial cost of investment

2. Compute the annual net cost or benefit from the runway.

Annual net benefit

3-a. Which of the data used in the analysis are likely to be most uncertain? (Select all that apply.)

Cost of acquiring land
Annual cost of maintaining new runway
Annual incremental revenue from landing fees
Cost of new snow plow
Cost of runway lights
Annual additional tax revenue
Salvage value of old snow plow

3-b. Which of the data used in the analysis are likely to be least uncertain? (Select all that apply.)

Annual additional tax revenue
Annual cost of maintaining new runway
Cost of acquiring land
Annual incremental revenue from landing fees
Cost of runway lights
Salvage value of old snow plow
Cost of new snow plow

Reference no: EM13566789

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