Question

Washington Countys Board of Representatives is considering the construction of a longer runway at the county airport. Curren

1. Compute the initial cost of the investment in the long runway. 2. Compute the annual net cost or benefit from the runway.

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Answer #1

1.

Compute the initial cost as follows:

Amount
Cost of acquiring additional land for runway $67,500
+ Cost of runway construction $260,000
+ Cost of extending perimeter fence $10,804
+ Cost of runway lights $35,000
+ Cost of new snowplow $130,000
- Sale of old snowplow ($13,000)
New initial outlay for long runway $490,304

________________________________________________________

2.

Compute the annual net cost or benefit from the runway as follows:

Amount
Annual incremental revenue from landing fees $32,500
Add: Additional tax revenue for the county $88,000
Less: Annual cost of maintaining new runway ($17,500)
Less: Extra annual operating cost of new plow ($9,000)
Annual benefit of the runway $94,000

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3.

Compute IRR of the project as follows using the spreadsheet as follows:

C 20 | 21 22 A Year 0 1 2 Initial cost outlay of runway Annual benefit of the runway 26 ($490,304) | $94,000 $94,000 $94,000

Working as follows:

B C | 21 Initial cost outlay of runway Annual benefit of the runway A Year 0 1 2 3 4 5 6 ($490,304) $94,000 $94.000 $94,000 $

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