Question

"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 a nonstop basis. The total investment package is worth $10 million and expected to last 11 years with a $670,000 salvage value. The annual operating and maintenance costs for buses would be $1.9 million during the first year, and will grow by 8% each year over the previous year thereafter. If the system is used for 620,000 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 a 3% interest rate for city-sponsored projects. Hint: refer to the present worth formula for a geometric gradient to calculate the present worth of annual costs."

Answer 1

To determine the rate per trip, make profitability index=1 using goal seek function while changing rate per trip