The University Shuttle Decision THE CASE Amita Night, a Lbrarian at Vale University, lives in the community of Downtown, a coumumity of spproximately 45,000 residents; twenty-five km from school. She had been thinking about her conumute to work for some time now; gas was orer $4 a gallon and her car was approaching the 100,000 km mark. Aftor discussions with serenl friends who make the same commute, she and her friends were wondering if a shuttle bus would be an option that might benefit both the people who malke the drive and cimultanecualy be profitable to the umiversity. Anita met with Geoff Newmsn, Vice President of Business Affairs, to 200 if Vale University would consider purchasing a bus for this purpoes. She opined there were quite a few poople who live in Downtown who drive to the umiversity and that they would gladly pay a fure to cover the bus costs. Benefits would inchide a reduced "carbon footprint" and significantly fewer km being driven on the cars used by theos people. Geoff met with hiz stnff and the president of the umiversity to consider this service. After the meeting he met with Anita to explain the umiversity's position. While erveyone laked the thought of proriding the bus sartice, he explained, the umiversity just im't in the buxiness of providing transportation to its euployes. Vale University doennt have the facilities or staff to maintain the eupment and there is risk: that this would lose money and coet the university finmcisily. Ho said, "Try explaining to the students why their trution is going toward a shutele bus to Dosutown!" Gooff then offered an alternative; that university officisls would moet with DARTS, Downtown Authonity Regionsl Transit Sertices. Perhapa they would add a dedicated bus line to Vale Universiry. DARTS is a public traniportation system for the urbenized. Downtonn. Aren, which travels about 1.5 million km per yexr. Over 2,700 people ride DARTS buses esch day to work, doctor visits, shopping or school. People pay a minimal fare (\$1.25 per fixed route), with DARTS being rubsidized through a combination of tax dollars and other public finds. A week later GeofI met with Penny Relkel; controller for DARTS. Perny explaimed that such a zarvice would be out of DARTS regionsl jurizdiction, and as zuch it cannot be zubaidized through any public funding. In effect, the rectice would have to be paid for enfirely by user farec, and would be operated on a "for profit" baxis. Geoff said the university would still be interested, and azked Penny if a proposal could be put together, culn:inating in the fare that would be chrrged ahuttle bus users. Penny agreed and added that because this would be a separate service operated for a profit, they would purchase a bus (or busses) for this service rather than use busses from the existing flest. Penny gathered more information about the mamber of univarsity commanity who would be wring the shurle service. The Vale Univarsity's depurment of institationsl resesch revosled that 116 faculty and staff as weil a 454 stadents lived in Downtown. These people were survyed and an anslyzis of the reaults lead to a projection that spproximately 200 mould use the shutle sarvice. Upon agreement with the wiverxity, the shurte schedulad for Mondsy until Thurdsy will be: 7:20m - Dowutown to Vale Univarsity then back to Dowmtowy: 12:00pm Dorrutown to Vale Uxiversity them back to Dorxtown; 4:45pm, Downtown to Vale University then back to Downtown; 9-30pm - Dorztown to Vale University then back to Dowatown. The 9:30pm service exists due to the lugge number of stadents and faculty who take and teach night clanses at Vale University. The Friday bus achedale will be limited: 7:20am - Downtown to Vale Univarsity then back to Downtown; 12:00pm - Downtown to Vale University then back to Downtown; 4:45pm, Downtown to Vale Umiversity then back to Doumtoma; po 9:30 service. Each tro-may commute will total 50km. Detzils of projected shutle schodule and paraengers are a: follows: Table 1. Projected Bus Schedule and Passengers A fill-size bus, 32 passenger vehicle can be acquired for $335,000. These tehicles have am estimated life of 12-yesrs or 500,000km. Thece are ciecel engine vehicles. Altemstively, minibus, 8-11 passenger lift bus can be acquired for 555,000 , which has a 7 yex, 200,000-meile life. Pesk demand wall be Monday through Thursday at 7:20sm (125 parsengers) and 4:45pun (115 paszengers). As such, four, 32 paszenger busses will be needed to accommoodate thoes two pesk times. DARTS decided to use the bus life as the time finme for this amslysis, 500,000km or 12 years. The average maintensuce cost per vehicle is approximstely $5,800 per year, and projected to grow at 5\% per year. If a bus bresks down, DARTS will immedistely dispatch a backup bus to the scene. The coat of dispatching this bus will be $500, inclusive of all related costs. Busses are well msintsined, and this is expected to seldom happen, pechaps four times per yeur. This cost is expected to incresce approximately 5% per yexr. Whilst, if a bus is full with more people wanting to ride, an additionsl bus will be immediately dispatched. The coat will be 5350 for a minibus or 5500 for the fall-sine bus. The DAR.TS munagement decided to project this would happen ten times throughout a year, and that the minibus would be dispatched. This cost por bus is projected to incresce 5% por year. The bus authority is given varions cost abstements with regard to fuel, and after abatements the axerage fuel cost for this yeur is expected to be $2.18 per gallon. The full-sire bus averagea 3.80km per gallon. This fuel coat is projected to incresse at an aversge of 6% per your. The salary for a bua driver is \$36,500 per yesr, including overtime, shift premiums, wd other costs. Fringe bensfits total 521,550 . It is estimsted that this route will use the services of one and one half (1/3) drivers throughout the yex, put another way, one driver fall time and sacend driver half time. This is expected to increase approximately 3% par year. A daily bus route will be directly from Downtown to Vale Univarsity and back to Downtown, a dinve of fitty km, round trip. The shutile service will operate 5 dayz per week, with limited service on Friday. The bus service will be in operation when school is open. This would be fifteen weeks for each of the three semeaters; fall, winter, and spring/summer, total of 45 weeks. Given the rikliness and uncertainty involved in this service, DARTS would like to uee a 15% retum per yex as its hurdle rate, and thus charging one-way fare per pascenger for R7.43. DARTS income tax rate is 25% and uses a 12% atter-tax discount rate. Discussion Questions: 1) Compate: a. The net present value of the exiestimated after-tax cash flows. b. The intermal rate of return c. The paytack period. 2) Use your revalt in reguirement 1 to recommend whether DARTS should provide the univerxity shuttie sarvice. 3) Outlims the strategic and other qualitative considerations that may need to be thken into accoumt in relation to the above proposal