Prepare net present value analysis of proposed long runway

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Question - 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 $100,000. The old snowplow could be sold now for $10,000. The new, larger plow will cost $12,000 more in annual operating costs. Second, the City Council believes that the proposed long runway, and the major jet service it will bring to the city, will increase economic activity in the community. The Council projects that the increased economic activity will result in $64,000 per year in additional tax revenue for the city. In analyzing the runway proposal, the Council has decided to use a 10-year time horizon. The city's hurdle rate for capital projects is 12 percent.

Required -

a. Prepare a net present value analysis of the proposed long runway.

b. Should Council approve the runway?

Reference no: EM133110430

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