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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

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

FINANCIAL ACCOUNTING
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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In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county's hurdle rate for capital projects is 12 percent. The County Board of Representatives believes that if the county conducts a promotional effort costing $21,950 per year. the proposed long runway will result in substantially greater economic development than was projected originally. However, the board s uncertain about the actual increase in county tax revenue that will result. Required: Suppose the board builds the long runway and conducts the promotional campaign. What would the increase in the county's annual tax revenue need to be in order for the proposed runway's internal rate of return to equal the county's hurdle rate of 12 percent? Note: Round your intermediate calculations and final answer to the nearest whole dollar. Required increase in tax revenue
Transcribed Image Text:In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county's hurdle rate for capital projects is 12 percent. The County Board of Representatives believes that if the county conducts a promotional effort costing $21,950 per year. the proposed long runway will result in substantially greater economic development than was projected originally. However, the board s uncertain about the actual increase in county tax revenue that will result. Required: Suppose the board builds the long runway and conducts the promotional campaign. What would the increase in the county's annual tax revenue need to be in order for the proposed runway's internal rate of return to equal the county's hurdle rate of 12 percent? Note: Round your intermediate calculations and final answer to the nearest whole dollar. Required increase in tax revenue
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 it will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $77,260 per year in additional tax revenue for the county. In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county's hurdle rate for capital projects is 12 percent.
Transcribed Image Text: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 it will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $77,260 per year in additional tax revenue for the county. In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county's hurdle rate for capital projects is 12 percent.
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