SWFT Comprehensive Vol 2020
43rd Edition
ISBN: 9780357391723
Author: Maloney
Publisher: Cengage
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The city of Columbia is considering extending the runways of its municipal
airport so that commercial jets can use the facility. The land necessary for the
runway extension is currently a farmland that can be purchased for $350,000.
Construction costs for the runway extension are projected to be $600,000, and
the additional annual maintenance costs for the extension are estimated to be
$22,500. If the runways are extended, a small terminal will be constructed
at a cost of $250,000. The annual operating and maintenance costs for the
terminal are estimated at $75,000. Finally, the projected increase in flights
will require the addition of two air traffic controllers at an annual cost of
$100,000. Annual bemefits of the runway extension have been estimated as
follows:
Rental receipts from airlines leasing space at the facility
$325,000
$65,000 Airport tax charged to passengers
$50,000
$50,000
Convenience benefit for residents of Columbia
Additional tourism dollars for Columbia
Apply the…
The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for the runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000, and the additional annual maintenance costs for the extension are estimated to be $22,500. If the runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance costs for the terminal are estimated at $75,000. Finally, the projected increase in flights will require the addition of two air traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows (shown): Apply the B–C ratio method with a study period of 20 years and a MARR of 10% per year to determine whether the runways at Columbia Municipal Airport should be extended.
The environmental protection agency of Verdesi County would like to
preserve a piece of land as a wilderness area. The current owner has
offered to lease the land to the county for 20 years in return for a lump-sum
payment of $1.1 million, which would be paid at the beginning of the 20-
year period. The agency has not yet estimated benefits, but has observed
the following in two other very similar counties:
County
Sanders
Entry Fee
$0.75
$0.50
Annual Visitors
55,000
110,000
Liu
Assume that the lease price represents the social opportunity cost of the
land and that the appropriate real discount rate is 4 percent.
A. Calculate the annual benefits accruing to recreational users of the
Verdesi County preservation, assuming that the county does not
charge any entry fee.
B. Assuming that the yearly benefits, which are measured in real dollars,
accrue at the end of each of the 20 years, calculate the net benefits of
leasing the land.
C. Some analysts in the agency argue that the annual real…
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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 $ 70,000 Cost of runway construction 200,000 Cost of extending perimeter fence 29,840 Cost of runway lights 39,600 Annual cost of maintaining new runway 28,000 Annual incremental revenue from landing fees 40,000 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 $100,000. The old snowplow could be sold now for $10,000. The new, larger plow will cost $12,000 more in annual operating costs. Second, the County Board of Representatives believes that the…arrow_forwardTraverse County needs a new county government building that would cost $10 million. The politicians feel that voters will not approve a municipal bond issue to fund the building since it would increase taxes. They opt to have a state bank issue $10 million of tax-exempt securities to pay for the building construction. The county then will make yearly lease payments (of principal and interest) to repay the obligation. Unlike conventional municipal bonds, the lease payments are not binding obligations on the county and, therefore, require no voter approval. Required 1. Do you think the actions of the politicians and the bankers in this situation are ethical? 2. In terms of risk, how do the tax-exempt securities used to pay for the building compare to a conventional municipal bond issued by Traverse County?arrow_forward2. A warehouse owned by Martha and used in her business (i.e., to store inventory) is being condemned by the city to provide a right-of-way for a highway. The warehouse has appreciated by $180,000 based on Martha’s estimate of its fair market value. In the negotiations, the city is offering $35,000 less than what Martha believes the property is worth. Alan, a real estate broker, has offered to purchase Martha’s property for $20,000 more than the city’s offer. Martha plans to invest the proceeds she will receive in an office building she will lease to various tenants. Identify the relevant tax issues for Martha. Would the answer in part (1) change if Martha’s warehouse was property being held for investment rather than being used in her business? Explain.arrow_forward
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