A state highway department is planning the construction of a toll road. Construction costwill be $300 million (at period = year 0). Annual maintenance is estimated to be $1 millionevery year from year 1 and in perpetuity. In addition, a major resurfacing will have to becarried out at the cost of $10 million every 10 years in perpetuity. MARR is 10%. It isestimated that 5 million vehicles per year will use the toll road starting in year 1 and inperpetuity, and each vehicle will pay a constant toll $T.Show the (indicative) cash flow diagram for this project.Use AW analysis to determine what breakeven constant toll $T should becharged to each vehicle to make sure benefits will be economically equivalent to costs.

The objective of this question is to determine the breakeven toll fee that should be charged to each…

Answered: A state highway department is planning…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The state of Glottamora has $100 million remaining in its budget for the current year. One alternative is to give Glottamorans a one-time tax rebate. Alternatively, two proposals have been made for state expenditures of these funds. The first proposed project is to invest in a new power plant, costing $100 million and having an expected useful life of 20 years. Projected benefits accruing from this project are as follows:YEARS BENEFITS PER YEAR ($ MILLIONS)1–5 06–20 20The second alternative is to undertake a job retraining program, also costing $100 million and generating the following benefits:YEARS BENEFITS PER YEAR ($ MILLIONS)1–5 206–10 1411–20 4The state Power Department argues that a 5 percent discount factor should be used in evaluating the projects because that is the government’s…
A newly constructed water treatment facility costs $2 million. It is estimated that the facility will need revamping to maintain the original design specification every 30 years at a cost of $1 million. Annual repairs and maintenance costs are estimated to be $100,000. At an interest rate of 8%, determine the capitalized cost of the facility, assuming that it will be used for an indefinite period.
A state highway department is considering a bypass loop that is expected to save motorists $821,000 per year in gasoline and other automobile-related expenses. However, local businesses will experience revenue losses estimated to be $131,000 each year. The cost of the loop will be $8,900,000. Calculate the conventional B/C ratio using an interest rate of 7% per year and a 10-year project period.
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4 million to set up and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $8 million during this year and depreciation expense will be another $2 million. THSI will require no working capital for this investment. THSI's tax-rate is 20% Assume that THSI's cost of capital for this project is 15%. The net present value (NPV) of this temporary housing project is closest to:
A local municipality is considering investing $220,000 to upgrade a park. Based on similar investments made by similar cities, it is anticipated the investment will result in annual costs and annual benefits over a 7-year period as shownin the cash flow profhle given below in thousands of dollars. Notice, an intermediate investment of $140,000 is anticipated in the 6th year of the investment. Based on a MARR of 5%, calculate the benefit-cost ratio of the investment. Round answer to two decimal places. (All values in thousand dollars) End-of Year Costs Benefits Net Cash Flow $220 -$220 $70 $120 $50 $70 $130 $60 $70 $140 $70 4 $70 $150 $80 $70 $160 $90 $210 $170 -$40 7. $70 $160 $90 1.45 2. in
The department of transport will collect 5$ toll from each vehicle to recover the cost of a newly- built highway. In the first year (end of year 1), 10,000 cars are expected to use the highway followed by 4% annual increase in traffic due to the expansion of the city. Determine the equivalent present worth of this project over 20 years' time and at an interest rate of 8%?
K A highway bridge is being considered for replacement. The new bridge would cost $X and would last for 24 years. Annual maintenance costs for the new bridge are estimated to be $27,000. People will be charged a toll of $0.22 per car to use the new bridge. Annual car traffic is estimated at 360,000 cars. The cost of collecting the toll consists of annual salaries for six collectors at $9,000 per collector. The existing bridge can be refurbished for $1,400,000 and would need to be replaced in 24 years. There would be additional refurbishing costs of $80,000 every five years and regular annual maintenance costs of $17,000 for the existing bridge. There would be no toll to use the refurbished bridge. If MARR is 10% per year, what is the maximum acceptable cost (X) of the new bridge? Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10per year. Choose the correct answer below. .... A. The maximum acceptable cost of the new bridge is $1,668,576.…
Temporary Housing Services Incorporated (THSI) is considering a project that involves setting up a temporary housing facility in an area recently damaged by a hurricane. THSI will lease space in this facility to various agencies and groups providing relief services to the area. THSI estimates that this project will initially cost $4.87 million to setup and will generate $20 million in revenues during its first and only year in operation (paid in one year). Operating expenses are expected to total $12 million during this year and depreciation expense will be another $3 million. THSI will require no working capital for this investment. THSI's marginal tax rate is 35%. Assume that THSI's cost of capital is 14.6% p.a. Compute the NPV of the temporary housing facility to the nearest dollar
Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, an additional equipment (AE) costing$2,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…
Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…
Rare Agri-Products Ltd. is considering a new project with a projectedlife of seven (7) years. The project falls under the government’ssubsidy program for encouraging local agricultural products and iseligible for a one-time rebate of 25% on any initial equipmentinstalled for the project. The initial equipment (IE) will cost$41,000,000. At the end of year 1, An additional equipment (AE) costing$3,500,000 will be needed at the end of year 3. At the end of seven(7) years, the original equipment, IE, will have no resale value butthe supplementary equipment, AE, can be sold for $50,000. A workingcapital of $1,350,000 will be needed.The project is forecast to generate sales of agri-products over theseven years as follows:Year 1 70,000 unitsYear 2 100,000 unitsYears 3-5 250,000 unitsYears 6-7 325,000 unitsA sale price of $150 per unit for the first two years is expected andthen decline to $90 per unit thereafter as the newness of the productloses some sheen. The variable expenses will amount…
Citywide Courier Services projects that demand for its services will rise for a period of three years before subsiding. It can lease additional communication for $1,000 at the beginning of every quarter for three years. Alternatively, it can purchase the equipment for $13,995 at 7.5% compounded quarterly. The salvage value of the equipment after three years is expected to be $4,000. Which option would you recommend? How much better is that option in today's dollars?

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