Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 4

The City of Boston is considering adding new buses for its current mass-transit system that links from the Hartsfield International Airport to major city destinations on nonstop basis. The total investment package is worth $8 million and expected to last 10 years with a $750,000 salvage value. The annual operating and maintenance costs for buses would be $2 million during the first year, and will grow by 5% each year over the previous year thereafter. If the system is used for 600,000 trips per year, what would be the fair price to charge per trip to have a profitability index of 1 Assume that the City of Boston uses 5% interest rate for any city sponsored projects.