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QUESTION 7 Suppose a local council is considering providing a new bus route. This would involve purchasing a new bus at a cost of
QUESTION 7 Suppose a local council is considering providing a new bus route. This would involve purchasing a new bus at a cost of $120,000 To evaluate the impact of the new bus route, the council has collected the following information on the expected benefits and costs: Route offerings per day (return trip): 16 trips Average number of passengers per route: 20 passengers Bus fare (return trip): $5.50 per passenger Assume each passenger completes a return trip, and the route runs all 52 weeks of the year. The project is expected to last for 5 years. To complete the bus route, the council also needs to hire 5 new casual bus drivers. Each bus driver works for 25 hours per week at a market wage of $22. The opportunity cost of labour in the area is 50% of the minimum wage. There is also an additional operating cost of $5,000 per year for fuel and servicing of the new bus. It has also been determined that the program will provide an external community benefit of $25,000 per year. If the appropriate discount rate is 6%, determine the following: The NPV of the Market CBA = $ The NPV of the Social CBA = $ The IRR of the Social CBA = $ The total discounted community benefit (PV of community benefit) is = $ Explain in detail whether the local council should accept/reject this project = and provide a detailed response in your spreadsheet). (write accept/reject in the box Provide all answers to 2 decimal places. Do not include a "," in your answers. Show all your working in your spreadsheet.
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