Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 2

The City of Washington is considering adding new buses for its current mass-transit system that links from the Tacoma International Airport to clustering city destinations on non-stop basis. The total investment package is worth $10 million and expected to last 10 years with a salvage value of $850,000. The annual operating and maintenance costs for buses would be $5 million during the first year and will grow by 5% each year over the previous year's O M costs thereafter. If the system is used for 800,000 trips per year, what would be the fair price to charge per trip Assume that the City of Washington uses 5% interest rate for any city-sponsored project. Assume the fare will be the same for all destinations.