Adams 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 $ 85,500
- Cost of runway construction 290,000
- Cost of extending perimeter fence 15,437
- Cost of runway lights 47,000
- Annual cost of maintaining new runway 23,500
- Annual incremental revenue from landing fees 62,500
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 $190,000. The old snowplow could be sold now for $19,000. The new, larger plow will cost $17,500 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 $114,000 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 19 percent.
1. Compute the initial cost of the investment in the long runway.
Initial cost of investment
2. Compute the annual net cost or benefit from the runway.
Annual net benefit
3-a. Which of the data used in the analysis are likely to be most uncertain? (Select all that apply.)
- Cost of acquiring land
- Annual cost of maintaining new runway
- Annual incremental revenue from landing fees
- Cost of new snow plow
- Cost of runway lights
- Annual additional tax revenue
- Salvage value of old snow plow
3-b. Which of the data used in the analysis are likely to be least uncertain? (Select all that apply.)
- Annual additional tax revenue
- Annual cost of maintaining new runway
- Cost of acquiring land
- Annual incremental revenue from landing fees
- Cost of runway lights
- Salvage value of old snow plow
- Cost of new snow plow