Question

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.

Cost of acquiring additional land for runway	$	75,000
Cost of runway construction		355,000
Cost of extending perimeter fence		23,158
Cost of runway lights		40,000
Annual cost of maintaining new runway		20,000
Annual incremental revenue from landing fees		45,000

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 $155,000. The old snowplow could be sold now for $15,500. The new, larger plow will cost $13,000 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 $66,000 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 6 percent.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

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

2. 2. Should the County Board of Representatives approve the runway considering NPV?

3. 3-a. Which of the data used in the analysis are likely to be most uncertain?

4. 3-b. Which of the data used in the analysis are likely to be least uncertain?

• Req 1
• Req 2
• Req 3A
• Req 3B

Prepare a net-present-value analysis of the proposed long runway. (Round your "Annuity discount factor" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

	Annual incremental benefit $0 Annuity discount factor Present value of annual benefits Initial costs: Net present value $0

Should the County Board of Representatives approve the runway considering NPV?

Which of the data used in the analysis are likely to be most uncertain? (Select which of the following statements (is) are true by selecting an "X".)

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 Which of the data used in the analysis are likely to be least uncertain? (Select which of the following statements (is) are true by selecting an "X".) 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

Answer 1

Answer is given below