Bill rides the subway at a cost of $0.75 per trip, but would switch if the price were any higher. His only alternative is a bus that takes 5 minutes longer, but is $0.50. He makes 10 trips per year. The city is considering renovations of the subway system that would reduce the trip by 10 minutes, but fares would rise by $0.40 per trip to cover the costs. The fare increase and reduced travel time both take effect in one year and last for the next 10 years. The interest rate is 25%. As far as Bill is concerned, what is the present value of the project’s benefits (time) and costs? (Hint: How much does he value his time?)
Bill rides the subway at a cost of $0.75 per trip, but would switch if the price were any higher. His only alternative is a bus that takes 5 minutes longer, but is $0.50. He makes 10 trips per year. The city is considering renovations of the subway system that would reduce the trip by 10 minutes, but fares would rise by $0.40 per trip to cover the costs. The fare increase and reduced travel time both take effect in one year and last for the next 10 years. The interest rate is 25%. As far as Bill is concerned, what is the present value of the project’s benefits (time) and costs? (Hint: How much does he value his time?)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Bill rides the subway at a cost of $0.75 per trip, but would switch if the price were any higher. His only alternative is a bus that takes 5 minutes longer, but is $0.50. He makes 10 trips per year. The city is considering renovations of the subway system that would reduce the trip by 10 minutes, but fares would rise by $0.40 per trip to cover the costs. The fare increase and reduced travel time both take effect in one year and last for the next 10 years. The interest rate is 25%. As far as Bill is concerned, what is the present value of the project’s benefits (time) and costs? (Hint: How much does he value his time?)
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