The city engineer and economic development directors are evaluating two sites for construction of a multipurpose sports arena. Th sites are downtown (DT) and southwest (SW) of the metropolitan area. The city already owns enough land at the DT site; however, t land for a parking garage will cost $1 million, and construction costs will be $10 million for the parking garage, infrastructure relocati and drainage. The SW site is 30 km from downtown, but the land will be donated by a developer who knows that an arena at this si will dramatically increase the value of the remainder of his land holdings. Because of its centralized location, there will be greater attendance at most of the events held at the DT site. This will result in more revenue to vendors and local merchants in the amount $550,000 per year. Additionally, the average attendee will not have to travel as far, resulting in annual benefits of $400,000 per yea All other costs and revenues are expected to be the same at either site. If the city uses a discount rate of 7% per year, and will construct at one site or the other, which site should be selected? Use a 30-year study period. The AB/C ratio is Select site downtown

The city engineer and economic development directors are evaluating two sites for construction of a multipurpose sports arena. Th sites are downtown (DT) and southwest (SW) of the metropolitan area. The city already owns enough land at the DT site; however, t land for a parking garage will cost $1 million, and construction costs will be $10 million for the parking garage, infrastructure relocati and drainage. The SW site is 30 km from downtown, but the land will be donated by a developer who knows that an arena at this si will dramatically increase the value of the remainder of his land holdings. Because of its centralized location, there will be greater attendance at most of the events held at the DT site. This will result in more revenue to vendors and local merchants in the amount $550,000 per year. Additionally, the average attendee will not have to travel as far, resulting in annual benefits of $400,000 per yea All other costs and revenues are expected to be the same at either site. If the city uses a discount rate of 7% per year, and will construct at one site or the other, which site should be selected? Use a 30-year study period. The AB/C ratio is Select site downtown

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The city engineer and economic development directors are evaluating two sites for construction of a multipurpose sports arena. The sites are downtown (DT) and southwest (SW) of the metropolitan area. The city already owns enough land at the DT site; however, the land for a parking garage will cost $1 million, and construction costs will be $10 million for the parking garage, infrastructure relocation, and drainage. The SW site is 30 km from downtown, but the land will be donated by a developer who knows that an arena at this site will dramatically increase the value of the remainder of his land holdings. Because of its centralized location, there will be greater attendance at most of the events held at the DT site. This will result in more revenue to vendors and local merchants in the amount of $700,000 per year. Additionally, the average attendee will not have to travel as far, resulting in annual benefits of $400,000 per year. All other costs and revenues are expected to be the same…
The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual bemefits of the runway extension have been estimated as follows: Rental receipts from airlines leasing space at the facility $325,000 $65,000 Airport tax charged to passengers $50,000 $50,000 Convenience benefit for residents of Columbia Additional tourism dollars for Columbia Apply the…
The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows (shown): Apply the B–C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended.
A city that operates automobile parking facilities is evaluating a proposal toerect and operate a structure for parking in its downtown area. Three designs for a facility to be built on available sites have been identified as follows, where all dollar figures are in thousands: At the end of the estimated service life, the selected facility would be torn down and the land would be sold. It is estimated that the proceeds from the resale of the land will be equal to the cost of clearing the site. If the city's interest rate is known to be 10%, which design alternative would be selected on the basis of the benefit-cost criterion?
The city is installing a new swimming pool in the east end recreation centre. One design being considered is a reinforced concrete pool that will cost $5000000 to install. Thereafter, the inner surface of the pool will need to be refinished and painted every 10 years at a cost of $450000 per refinishing. Assuming that the pool will have essentially an infinite life, what is the present worth of the costs associated with the pool design? The city uses a MARR of 6%. Review the following table and calculate the present worth of the project for a +5% change in refinishing costs. Round your answer to the nearest dollar. Parameter Construction Costs Refinishing Costs MARR [%] -10% -5% Base Case +5% +10% $5000000 $450000 6 Present Worth of -10% -5% 0% +5% Costs +10% Changes to Construction Costs Changes to refinishing Costs Changes to MARR ????? ?
Preliminary plans are underway for construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may purchase a box for $250,000. The fixed construction cost for the upper-deck area is estimated to be $5,400,000, with a variable cost of $100,000 for each box constructed. What is the breakeven point for the number of luxury boxes in the new stadium? Preliminary drawings for the stadium show that space is available for the construction of up to 60 luxury boxes. Promoters indicate that buyers are available and that all 60 could be sold if constructed. What is your recommendation concerning the construction of luxury boxes? What profit is anticipated? How will the break-even point change if the fixed cost increases by 15%, variable cost by 10% and selling price increases by 12.5%? ANSWER USING EXCEL
The Government is considering a multi-purpose river valley project in which would involve construction of a dam, a reservoir, a power house, and several irrigation canals. The project would supply water for irrigation, generate electricity, and provide a measure of protection against floods. The following information has been gathered by the project control board. The project will require the following during the construction stage: i) locally produced power equipment costing Ks 200 million; ii) imported power equipment costing $ 10 million; iii) 20,000 tonnes of steel produced locally and made available to the project at Ks 6000 a tonne; iv) 350,000 tonnes of cement produced locally and made available to the project at Ks 800 a tonne; v) other construction materials (sand, bricks, ballast, etc.) costing Ks 100 million; vi) 25 million man-days of unskilled labour for which the project control board has decided to pay a daily wage rate of Ks 10; and vii) skilled labour costing Ks…
A bridge is to be constructed now as part of a new road. Engineers have determined that traffic density on the new road will justify a two-lane road and a bridge at the present time. Because of uncertainty regarding futureuse of the road, the time at which an extra two lanes will be required is currently being studied. The two-lane bridge will cost $200,000 and the fourlane bridge, if built initially, will cost $350,000. The future cost of widening a two-lane bridge to four lanes will be an extra $200,000 plus $25,000 for every year that widening is delayed. The MARR used by the highway department is 12% per year. The following estimates have been made of the times at which the four-lane bridge will be required: In view of these estimates, what would you recommend? What difficulty, if any, do you have in interpreting your results? List some advantages and disadvantages of this method of preparing estimates.
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 Cost of runway construction Cost of extending perimeter fence Cost of runway lights Annual cost of maintaining new runway $ 61,500 310,000 32,100 31,000 15,500 22,500 Annual incremental revenue from landing fees 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 $110,000. The old snowplow could be sold now for $11,000. The new, larger plow will cost $6,500 more in annual operating costs. Second, the County Board of Representatives believes that the proposed long runway, and the major jet service…
New York City is evaluating the construction of a new train station to serve a new high-speed rail system. The Capital Projects Team is responsible for evaluating whether the project is economically acceptable. The Capital Projects Team estimates that the new train station will generate $1B in annual revenue, and provide $1B a year in cost savings. The new train line will cannibalize some of the existing revenues the City receives from its current train system. The value of this cannibalization is estimated at $500 MM a year. The new station's costs of Maintenance and Operation are anticipated to amount to be $250 MM per year. The initial investment required to design and build the train station is expected to be $15 B. New York City is considered to be a high credit and can borrow long-term in the capital markets at a rate of 6%. The Capital Projects Team evaluates these types of projects over a study period of 25 years. What is the Modified B/C Ratio? .94 1.00 1.07 1.10
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 Cost of runway construction Cost of extending perimeter fence Cost of runway lights. Annual cost of maintaining new runway Annual incremental revenue from landing fees $ 76,500 219,610 31,855 42,850 30,600 43,640 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 $113,000. The old snowplow could be sold now for $10,650. The new, larger plow will cost $13,300 more in annual operating costs. Second, the County Board of Representatives believes that the proposed long runway, and the major jet service…
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 $ 70,000 Cost of runway construction 200,000 Cost of extending perimeter fence 29,840 Cost of runway lights 39,600 Annual cost of maintaining new runway 28,000 Annual incremental revenue from landing fees 40,000 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 $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 County Board of Representatives believes that the proposed long runway, and the major jet service…

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