A large, land grant university, currently facing severeparking problems on its c

Question

A large, land grant university, currently facing severeparking problems on its campus is considering constructing parkingdecks off campus. A shuttle service could pick up studnets atthe off-campus parking deck, and quickly transport them to variouslocations on campus. The university would charge a small feefor each shuttle ride, and the students could be quickly andeconomically transported to their classes. The funds raisedby the shuttle would be used to pay for the trolleys, which costabout $150,000 each. Each trolley has a 12-year service lifewith an estimated salvage value of $3,000. To operate eachtrolley, the following additional expenses must beconsidered: Item               Annual Expenses ($) Driver              40,000 Maintenance     7,000 Insurance         2,000 If students pay $0.10 for each ride, determine the annualridership per trolley (number of shuttle rides per year) requiredto justify the shuttle project, assuming an interest rate of6%. A large, land grant university, currently facing severeparking problems on its campus is considering constructing parkingdecks off campus. A shuttle service could pick up studnets atthe off-campus parking deck, and quickly transport them to variouslocations on campus. The university would charge a small feefor each shuttle ride, and the students could be quickly andeconomically transported to their classes. The funds raisedby the shuttle would be used to pay for the trolleys, which costabout $150,000 each. Each trolley has a 12-year service lifewith an estimated salvage value of $3,000. To operate eachtrolley, the following additional expenses must beconsidered: Item               Annual Expenses ($) Driver              40,000 Maintenance     7,000 Insurance         2,000 If students pay $0.10 for each ride, determine the annualridership per trolley (number of shuttle rides per year) requiredto justify the shuttle project, assuming an interest rate of6%.

Explanation / Answer

Annual Fied cost will be Driver 40,000 Maint    7,000 Insu       2,000 Depn    12,500 = 150000/12 Interest   9,000 = 150000*6% -------------------------------- Fixed Cost 70,500 COnt per student = $0.1 No of students for Breakeven = Fixed cost/COnt per student =70500/0.1 = 705,000 So ANnual Ridership per trolley will be 705,000 students.

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