The City of Washington is considering adding new buses for its current mass-tran
ID: 2734074 • Letter: T
Question
The City of Washington is considering adding new buses for its current mass-transit system that links from the Tacoma International Airport to clustering city destinations on non-stop basis. The total investment package is worth $10 million and expected to last 10 years with a salvage value of $850, 000. The annual operating and maintenance costs for buses would be $5 million during the first year and will grow by 5% each year over the previous year's O&M; costs thereafter. If the system is used for 800, 000 trips per year, what would be the fair price to charge per trip? Assume that the City of Washington uses 5% interest rate for any city-sponsored project. Assume the fare will be the same for all destinations.Explanation / Answer
First of all calculation of Cash Flow Yr Cash out flow(in $) PVAF 5% Net cash flow(in $) 0 10000000 1 10000000 1 5000000 0.9524 4761904.762 2 5250000 0.9070 4761904.762 3 5512500 0.8638 4761904.762 4 5788125 0.8227 4761904.762 5 6077531 0.7835 4761904.566 6 6381408 0.7462 4761904.902 7 6700478 0.7107 4761904.618 8 7035502 0.6768 4761904.685 9 7387277 0.6446 4761904.621 10 7756641 0.6139 4761904.713 10 -850000 0.6139 -521826.05 cash flow 57097221.1 Fair per trip= 57097221/800000 71.37