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Category > Business & Finance Posted 02 Jun 2017 My Price 7.00

The city of Middleville is considering offering public bus service

The city of Middleville is considering offering public bus service. Setting up the service will cost the city $1.4M (where M stands for million). The useful life of the buses is 18 years. Annual maintenance of the buses would cost $120,000 per year and they would need a major overhaul in year 10 that will cost a total of $755,000. This overhaul is in addition to the annual maintenance. Annual labor and administrative costs will begin at $165,000 in year 1 and grow at 2.0% per year thereafter. The buses will generate a revenue of $275,000 in year 1 and it will grow at 5.5% per year thereafter. Reduced parking requirements and other benefits generated by the project will save the city $320,000 per year. The salvage value (price the city can get in the future after maintenance) of the used buses in year 18 is expected to be $405,000. What is the NPV of the bus proposal? The city does not pay taxes and the discount rate is 5.2%. Assume that all cash flows except initial investments happen at the end of the year and you are strongly encouraged to use a spreadsheet to solve this problem.

 
 

 

Answers

Alpha Geek
(8)
Status NEW Posted 02 Jun 2017 09:06 AM My Price 7.00

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Attachments

file 1496397746-1333044_1_636319063859471118_NPV.xlsx preview (35 words )
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