The city is planning to build a new 400-space parking garage building. The structure will have...

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The city is planning to build a new 400-space parking garage building. The structure will have a design life of 20 years. Operation and maintenance expenditures are $350,000 each year. The building is expected to have a salvage value of $250,000. The city is required to use a 6% annual interest rate for analysis of this (or any) project. The required money to build the structure ($6,000,000) will be raised by issuing a bond. The bond has a fixed 9.2% annual interest rate (compounded monthly). The city will repay the bond with equal payments made at the end of each year (i.e., twenty annual payments). a) Determine the annual payments required to repay the bond. (Hint: First determine the bond payments for the monthly accounting period. Then determine an equivalent annual payment at the end of a year, which the city would actually pay to the bank. Draw a cash flow diagram for both these steps). b) Determine the equivalent (uniform) annual cost for the parking garage structure (assuming the 6% annual interest rate). Draw a cash flow diagram that depicts all the system costs. (Hint: The capital cost of the system is not a single lump sum; it is the series of annual payments made to repay the bond that was issued). c) Determine the minimum annual revenue that each new parking space must generate in order for the project to break even. The city is planning to build a new 400-space parking garage building. The structure will have a design life of 20 years. Operation and maintenance expenditures are $350,000 each year. The building is expected to have a salvage value of $250,000. The city is required to use a 6% annual interest rate for analysis of this (or any) project. The required money to build the structure ($6,000,000) will be raised by issuing a bond. The bond has a fixed 9.2% annual interest rate (compounded monthly). The city will repay the bond with equal payments made at the end of each year (i.e., twenty annual payments). a) Determine the annual payments required to repay the bond. (Hint: First determine the bond payments for the monthly accounting period. Then determine an equivalent annual payment at the end of a year, which the city would actually pay to the bank. Draw a cash flow diagram for both these steps). b) Determine the equivalent (uniform) annual cost for the parking garage structure (assuming the 6% annual interest rate). Draw a cash flow diagram that depicts all the system costs. (Hint: The capital cost of the system is not a single lump sum; it is the series of annual payments made to repay the bond that was issued). c) Determine the minimum annual revenue that each new parking space must generate in order for the project to break even.

Answer rating: 100% (QA)

Answer a To determine the annual payments required to repay the bond we can use the formula for the ... View the full answer