The City of Atlanta Is Considering Adding New Buses for Its

question 12

Essay

The City of Atlanta is considering adding new buses for its current mass-transit system that links from the
Hartsfield International Airport to major city destinations on non-stop 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? Assume that the City of Atlanta uses 5% interest rate for any city-sponsored projects.