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Using NPV, what is the best Freight Rail alternative and the best Passenger Rail alternative?

Using NPV, what is the best Freight Rail alternative and the best Passenger Rail alternative?

Essentials Of Investments
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
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Using NPV, what is the best Freight Rail alternative and the best Passenger Rail alternative? Explain how you arrived to the answer 

The Mayor of Chicago is evaluating two rail transportation projects. The first focuses on improving fuel efficiency in the Chicago regional freight rail network by modifying locomotives to achieve fuel cost savings. The second project aims to enhance the Chicago passenger rail infrastructure, such as adding second tracks at congested network locations, thereby increasing ticket and pass sales. These projects are expected to benefit the city for the next 30 years. The city Treasurer advises securing financing at a 7% annual rate based on the investment's risk. Detailed alternatives for each project and their associated costs and benefits are provided below: **Freight Rail Network** | Alternative | Investment ($K) | Monthly Benefit ($K) | |-------------|-----------------|----------------------| | F0* | 0 | 0 | | F1 | 3,000 | 24.95 | | F2 | 6,000 | 56.56 | | F3 | 9,000 | 79.84 | | F4 | 12,000 | 89.82 | **Passenger Rail Network** | Alternative | Investment ($K) | Monthly Benefit ($K) | |-------------|-----------------|----------------------| | P0* | 0 | 0 | | P1 | 3,000 | 29.94 | | P2 | 6,000 | 51.56 | | P3 | 9,000 | 66.53 | | P4 | 12,000 | 73.18 | **Notes:** - F0* and P0* are the "do-nothing" alternatives for the Freight and Passenger Networks, respectively. - Consider only the monetary costs and benefits for these projects. This information will aid in selecting an optimal investment strategy for improving Chicago's rail networks.
Transcribed Image Text:The Mayor of Chicago is evaluating two rail transportation projects. The first focuses on improving fuel efficiency in the Chicago regional freight rail network by modifying locomotives to achieve fuel cost savings. The second project aims to enhance the Chicago passenger rail infrastructure, such as adding second tracks at congested network locations, thereby increasing ticket and pass sales. These projects are expected to benefit the city for the next 30 years. The city Treasurer advises securing financing at a 7% annual rate based on the investment's risk. Detailed alternatives for each project and their associated costs and benefits are provided below: **Freight Rail Network** | Alternative | Investment ($K) | Monthly Benefit ($K) | |-------------|-----------------|----------------------| | F0* | 0 | 0 | | F1 | 3,000 | 24.95 | | F2 | 6,000 | 56.56 | | F3 | 9,000 | 79.84 | | F4 | 12,000 | 89.82 | **Passenger Rail Network** | Alternative | Investment ($K) | Monthly Benefit ($K) | |-------------|-----------------|----------------------| | P0* | 0 | 0 | | P1 | 3,000 | 29.94 | | P2 | 6,000 | 51.56 | | P3 | 9,000 | 66.53 | | P4 | 12,000 | 73.18 | **Notes:** - F0* and P0* are the "do-nothing" alternatives for the Freight and Passenger Networks, respectively. - Consider only the monetary costs and benefits for these projects. This information will aid in selecting an optimal investment strategy for improving Chicago's rail networks.
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