Consider the Rail Runner train service for the following questions. The New Mexi

Question

Consider the Rail Runner train service for the following questions. The New Mexico Rail Runner is a publicly owned and operated intercity commuter

rail line that runs between Albuquerque and Santa Fe, New Mexico. The Rail Runner generally follows interstate highway 25 and has several stops in

-between Albuquerque (and a few south of Albuquerque)and Santa Fe. The service runs all week but is mainly focused

on serving commuters during peak morning and evening travel timesMonday through Friday.The project

cost $400 million to build and about $20 million a year to operate. More information about the rail runner

can be found here: http://www.nmrailrunner.com/

Assuming that the rail runner service will operate for 100 years and a 3% annual interest rate, what would the annual net benefits of the rail runner service need to be in order to be considered an acceptable project using a cost benefit analysis?

Explanation / Answer

Assuming that in year zero the enire cost 400 million is incurred and the train operates from year 1 and generates benefits.

The excel table of solution is given below -

Using this anaysis , Net present value of the project = 0 ( I have used solver tool in excel )

Annual net benefits of the rail runner service should be minimum 32.66 million $ to be considered an acceptable project.

Year Costs (Million $) Benefits (Million $) Total 0 -400 0.00 -400.00 1 -20 32.66 12.66 2 -20 32.66 12.66 3 -20 32.66 12.66 4 -20 32.66 12.66 5 -20 32.66 12.66 6 -20 32.66 12.66 7 -20 32.66 12.66 8 -20 32.66 12.66 9 -20 32.66 12.66 10 -20 32.66 12.66 11 -20 32.66 12.66 12 -20 32.66 12.66 13 -20 32.66 12.66 14 -20 32.66 12.66 15 -20 32.66 12.66 16 -20 32.66 12.66 17 -20 32.66 12.66 18 -20 32.66 12.66 19 -20 32.66 12.66 20 -20 32.66 12.66 21 -20 32.66 12.66 22 -20 32.66 12.66 23 -20 32.66 12.66 24 -20 32.66 12.66 25 -20 32.66 12.66 26 -20 32.66 12.66 27 -20 32.66 12.66 28 -20 32.66 12.66 29 -20 32.66 12.66 30 -20 32.66 12.66 31 -20 32.66 12.66 32 -20 32.66 12.66 33 -20 32.66 12.66 34 -20 32.66 12.66 35 -20 32.66 12.66 36 -20 32.66 12.66 37 -20 32.66 12.66 38 -20 32.66 12.66 39 -20 32.66 12.66 40 -20 32.66 12.66 41 -20 32.66 12.66 42 -20 32.66 12.66 43 -20 32.66 12.66 44 -20 32.66 12.66 45 -20 32.66 12.66 46 -20 32.66 12.66 47 -20 32.66 12.66 48 -20 32.66 12.66 49 -20 32.66 12.66 50 -20 32.66 12.66 51 -20 32.66 12.66 52 -20 32.66 12.66 53 -20 32.66 12.66 54 -20 32.66 12.66 55 -20 32.66 12.66 56 -20 32.66 12.66 57 -20 32.66 12.66 58 -20 32.66 12.66 59 -20 32.66 12.66 60 -20 32.66 12.66 61 -20 32.66 12.66 62 -20 32.66 12.66 63 -20 32.66 12.66 64 -20 32.66 12.66 65 -20 32.66 12.66 66 -20 32.66 12.66 67 -20 32.66 12.66 68 -20 32.66 12.66 69 -20 32.66 12.66 70 -20 32.66 12.66 71 -20 32.66 12.66 72 -20 32.66 12.66 73 -20 32.66 12.66 74 -20 32.66 12.66 75 -20 32.66 12.66 76 -20 32.66 12.66 77 -20 32.66 12.66 78 -20 32.66 12.66 79 -20 32.66 12.66 80 -20 32.66 12.66 81 -20 32.66 12.66 82 -20 32.66 12.66 83 -20 32.66 12.66 84 -20 32.66 12.66 85 -20 32.66 12.66 86 -20 32.66 12.66 87 -20 32.66 12.66 88 -20 32.66 12.66 89 -20 32.66 12.66 90 -20 32.66 12.66 91 -20 32.66 12.66 92 -20 32.66 12.66 93 -20 32.66 12.66 94 -20 32.66 12.66 95 -20 32.66 12.66 96 -20 32.66 12.66 97 -20 32.66 12.66 98 -20 32.66 12.66 99 -20 32.66 12.66 100 -20 32.66 12.66

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