Required information [The following information applies to thequestions displayed below.] Washington County’s Board ofRepresentatives is considering the construction of a longer runwayat the county airport. Currently, the airport can handle onlyprivate aircraft and small commuter jets. A new, long runway wouldenable the airport to handle the midsize jets used on many domesticflights. Data pertinent to the board’s decision appear below. Costof acquiring additional land for runway $ 82,500 Cost of runwayconstruction 280,000 Cost of extending perimeter fence 19,908 Costof runway lights 45,000 Annual cost of maintaining new runway22,500 Annual incremental revenue from landing fees 57,500 Inaddition to the preceding data, two other facts are relevant to thedecision. First, a longer runway will require a new snowplow, whichwill cost $180,000. The old snowplow could be sold now for $18,000.The new, larger plow will cost $16,000 more in annual operatingcosts. Second, the County Board of Representatives believes thatthe proposed long runway, and the major jet service it will bringto the county, will increase economic activity in the community.The board projects that the increased economic activity will resultin $94,000 per year in additional tax revenue for the county. Inanalyzing the runway proposal, the board has decided to use a10-year time horizon. The county’s hurdle rate for capital projectsis 18 percent. Use Appendix A for your reference. (Use appropriatefactor(s) from the tables provided.) Required: 1. Compute theinitial cost of the investment in the long runway. 2. Compute theannual net cost or benefit from the runway. 3-a. Determine the IRRon the proposed long runway. (Round your answer to the nearestwhole percent.) 3-b. Should it be built considering IRR?
