SWFT Individual Income Taxes
43rd Edition
ISBN: 9780357391365
Author: YOUNG
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.
A real estate investor has the opportunity to purchase land currently zoned as residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:
State of Nature
Rezoning Approved
Rezoning Not Approved
Decision Alternative
s1
s2
Purchase, d1
600
-200
Do not purchase, d2
0
0
(a)
If the probability that the rezoning will be approved is 0.5, what decision is recommended?
Recommended Decision:
What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000.
$
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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 proposed long runway, and the major jet service…arrow_forwardThe state is considering three proposals for increasing the capacity of the main drainage canal in an agricultural region. Proposal A requires dredging the canal. The state is planning to purchase the dredging equipment and accessories for $650,000. The equipment is expected to have a 10-year life with a $17,000 salvage value. The annual operating costs are estimated to total $50,000. To control weeds in the canal itself and along the banks, environmentally safe herbicides will be sprayed during the irrigation season. The yearly cost of the weed control program is expected to be $120,000.Proposal B is to line the canal walls with concrete at an initial cost of $4 million. The lining is assumed to be permanent, but minor maintenance willbe required every year at a cost of $5000. In addition, lining repairs will have to be made every 5 years at a cost of $30,000.Proposal C is to construct a new pipeline along a different route. Estimatesare: an initial cost of $6 million, annual…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_forward
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