Ann Arbor Railroad (AAR) is a railroad company that is partly financed by the US Department...

   
 
 

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Ann Arbor Railroad (AAR) is a railroad company that is partly financed by the US Department of Transportation through its high-speed rail stimulus initiative. AAR operates daily train service between Detroit, MI and Chicago, IL. The Company operates two classes of passenger trains: slow-speed and high-speed. AAR built and currently maintains a roadbed and tracks between the two cities as well as stations in both Detroit, MI and Chicago, IL. The tracks and signaling equipment cost approximately $1 million per mile to build and will be depreciated over thirty years. The bulk of the Company's station-related costs arise from the Detroit and Chicago stations. Costs for the intermediate stations, which are only used by the slow-speed trains, are largely paid for by the local municipalities. AAR does not own any trains but leases them. Specifically, it leases 10 high-speed trains (locomotives plus carriages) from Siemens AG and 10 slow-speed trains (locomotives plus carriages) from GE. Locomotives refer to the motorized entity pulling the carriages. Carriages carry passengers but are unable to move autonomously. The Company is responsible for maintaining the trains. The high-speed trains are technologically advanced and more costly than the slow-speed trains, which are technologically simpler and older. AAR employs the train engineers and the onboard service staff. The Company has contracted with Gourmet Services to provide complimentary food and drinks to high-speed passengers. The contract entails a fixed monthly payment of $700,000 plus $8 per passenger. Slow-speed train passengers receive no complimentary items; they can buy food and beverages from an independent catering company with no profit or loss for AAR. Projected cost and travel volume data appear in Tables 1 and 2. Please refer to these to answer the questions below. The data are only approximate and have been modified to ease computations. Table 1. Ann Arbor Railroad- Projected Cost for March 20XO COST TYPE COST ELEMENTS AMOUNT Head office-related (in Detroit station) Administrative personnel, marketing costs, IT сosts $500,000 per month Roadbed, track, and signaling equipment-related Depreciation of track & signaling equipment $1,000,000 per month Interest payments $500,000 per month Maintenance workers $5,000 per month $200 per slow-speed trip $400 per high-speed trip Repair materials Station-related Building costs (temperature control, leasing costs, etc.) and other costs (including cleaning service, ticket, and baggage handling personnel) Detroit: $20,000 per month Chicago: $32,000 per month All other stations combined: $7,000 per month Leasing costs - slow-speed train Leasing costs - high-speed train $100,000 per month per train $500,000 per month per train Train-related Hauling costs (power and fuel) $5,000 per slow-speed trip $8,000 per high-speed trip Engineers and onboard service staff total $150,000 per month Gourmet services contract $700,000 per month $8 per passenger Onboard services Table 2. Ann Arbor Railroad - Projected Business for March 20X0 VOLUME Slow-Speed High-Speed Trips 200 300 100,000 Total Passengers (over all trips) 75,000 Average Ticket Price $50 $180 Note: Passenger volumes and fares are averaged across trips. Trips and Average Ticket Price both refer to round trips. 1. What is the total projected cost for March 20X0? Ann Arbor Railroad (AAR) is a railroad company that is partly financed by the US Department of Transportation through its high-speed rail stimulus initiative. AAR operates daily train service between Detroit, MI and Chicago, IL. The Company operates two classes of passenger trains: slow-speed and high-speed. AAR built and currently maintains a roadbed and tracks between the two cities as well as stations in both Detroit, MI and Chicago, IL. The tracks and signaling equipment cost approximately $1 million per mile to build and will be depreciated over thirty years. The bulk of the Company's station-related costs arise from the Detroit and Chicago stations. Costs for the intermediate stations, which are only used by the slow-speed trains, are largely paid for by the local municipalities. AAR does not own any trains but leases them. Specifically, it leases 10 high-speed trains (locomotives plus carriages) from Siemens AG and 10 slow-speed trains (locomotives plus carriages) from GE. Locomotives refer to the motorized entity pulling the carriages. Carriages carry passengers but are unable to move autonomously. The Company is responsible for maintaining the trains. The high-speed trains are technologically advanced and more costly than the slow-speed trains, which are technologically simpler and older. AAR employs the train engineers and the onboard service staff. The Company has contracted with Gourmet Services to provide complimentary food and drinks to high-speed passengers. The contract entails a fixed monthly payment of $700,000 plus $8 per passenger. Slow-speed train passengers receive no complimentary items; they can buy food and beverages from an independent catering company with no profit or loss for AAR. Projected cost and travel volume data appear in Tables 1 and 2. Please refer to these to answer the questions below. The data are only approximate and have been modified to ease computations. Table 1. Ann Arbor Railroad- Projected Cost for March 20XO COST TYPE COST ELEMENTS AMOUNT Head office-related (in Detroit station) Administrative personnel, marketing costs, IT сosts $500,000 per month Roadbed, track, and signaling equipment-related Depreciation of track & signaling equipment $1,000,000 per month Interest payments $500,000 per month Maintenance workers $5,000 per month $200 per slow-speed trip $400 per high-speed trip Repair materials Station-related Building costs (temperature control, leasing costs, etc.) and other costs (including cleaning service, ticket, and baggage handling personnel) Detroit: $20,000 per month Chicago: $32,000 per month All other stations combined: $7,000 per month Leasing costs - slow-speed train Leasing costs - high-speed train $100,000 per month per train $500,000 per month per train Train-related Hauling costs (power and fuel) $5,000 per slow-speed trip $8,000 per high-speed trip Engineers and onboard service staff total $150,000 per month Gourmet services contract $700,000 per month $8 per passenger Onboard services Table 2. Ann Arbor Railroad - Projected Business for March 20X0 VOLUME Slow-Speed High-Speed Trips 200 300 100,000 Total Passengers (over all trips) 75,000 Average Ticket Price $50 $180 Note: Passenger volumes and fares are averaged across trips. Trips and Average Ticket Price both refer to round trips. 1. What is the total projected cost for March 20X0?

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