Adams Countys 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 boards decision appear below.

Cost of acquiring additional land for runway	$	72,000
Cost of runway construction		235,000
Cost of extending perimeter fence		19,156
Cost of runway lights		38,000
Annual cost of maintaining new runway		19,000
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 $145,000. The old snowplow could be sold now for $14,500. The new, larger plow will cost $11,000 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 $108,000 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 countys hurdle rate for capital projects is 23 percent.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

11.

value: 2.00 points

Required information

Required:

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/annual net cost: ?

3-a.	Determine the IRR on the proposed long runway. (Round your answer to the nearest whole percent)
	IRR: ? %

3-b.

Should it be built?

-	Yes
-	No

12.

value: 5.00 points

Required information

Required:
1.	Prepare a net-present-value analysis of the proposed long runway. (Round your "Annuity discount factor" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

2.

Should the County Board of Representatives approve the runway?

	Yes
	No

3-a.	Which of the data used in the analysis are likely to be most uncertain? (Select all that apply.)

3-b.	Which of the data used in the analysis are likely to be least uncertain? (Select all that apply.)

13.

value: 1.50 points

Required information

In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The countys hurdle rate for capital projects is 23 percent. The County Board of Representatives believes that if the county conducts a promotional effort costing $23,500 per year, the proposed long runway will result in substantially greater economic development than was projected originally. However, the board is uncertain about the actual increase in county tax revenue that will result.

Required:

Suppose the board builds the long runway and conducts the promotional campaign. What would the increase in the countys annual tax revenue need to be in order for the proposed runways internal rate of return to equal the countys hurdle rate of 23 percent? (Round intermediate and final answer to the nearest dollar amount.)

Required increase in tax revenue: ?

Annual incremental benefit Annuity discount factor Present value of annual benefits Initial costs Net present value