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Question 7 (11 points) Washington County's Board of Representatives is considering the construction of a longer runway at the county airport in 10 years. Currently,
Question 7 (11 points) Washington County's Board of Representatives is considering the construction of a longer runway at the county airport in 10 years. 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 40,000 fees In addition to the preceding data, two other facts about the construction: 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 it will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $64,000 per year in additional tax revenue for the county. The board's required rate of return for capital projects is 12 percent. Refer to the appendix for helpful information. A) Use the NPV method to decide whether this construction project should be taken. Round your final answer to whole dollars. (5 points) B) Use the IRR method to decide whether this construction project should be taken. (3 points) C) The County Board of Representatives believes that if the county conducts a promotional effort costing $20,000 per year, the proposed long runway will result in greater economic development than was projected originally. However, the board is uncertain about the actual increase in county tax revenue that will result. Faced with such uncertainty, the risk-adverse board decides to raise its required rate of return to 14%. Given this new required rate of return, how much does the county's annual tax revenue need to increase in response to the promotional effort, in order to make the whole project attractive for the county? Round your intermediate calculations and final answer to the nearest whole dollar. (3 points) Appendix: Additional information for Question 7 in Section B
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